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"Marginal Impact" Of Ukraine War On India’s Economy, Says RBI Governor

India’s economy is far better placed today and there will be "marginal impact" from the Ukraine war, said RBI Governor Shaktikanta Das on Monday.

India’s economy is far better placed today, and there will be a "marginal impact" from the Ukraine war, said RBI Governor Shaktikanta Das on Monday, addressing industrialists at the National Council Meeting of the Confederation of Indian Industry or the CII.

Speaking on the economy and the risk of stagflation, Mr Das said the Indian economy is far better placed today.

"India is far away from such a prospect. You have to look at targets. We expect inflation in India to moderate. I don’t see a situation in India where inflation keeps on skipping the band we have set," he said. 

The impact of Ukraine will be marginal on the growth target. Let us remember when you make assumptions based on crude on commodity prices; you assume the figure will remain for 365 days.

The situation today is uncertain. The prospect of stagflation in India does not arise with all volatilities, added the RBI governor.

When asked about worries of widening the current account deficit on the surge in oil prices from the Russia-Ukraine war and supply concerns, he said that India is comfortably placed to deal with the challenge of financing the current account deficit.

We are confident of dealing with any emerging challenge, he added.

On liquidity, he said the central bank has infused ₹ 17 lakh crore during the past two years and will ensure adequate funds that the economy needs.

The top industrialists attending the event were Adi Godrej, TV Narendran, Sanjeev Bajaj, Keki Mistry of HDFC Bank and other top industry faces. They will interact with the governor on issues the industry faces coming out of the pandemic.

Banks are well-capitalised with a system-level capital adequacy ratio at 16; gross non-performing assets (NPAs) fall to a record low of 6.5 per cent, the RBI Governor said.

The trends towards globalisation are being challenged; there are disruptions. But the world will recalibrate to meet challenges, he said.

We monitor several high-frequency indicators at the RBI: more than 60 high-frequency indicators are tracked. And most are in the green, said the governor.

The Russia-Ukraine conflict has whiplashed crude oil markets, with Brent crude rising over 3 per cent on Monday to above $112 a barrel on supply concerns. 

Mr Das said the surge in crude oil prices would drive the world towards green energy. 

"Oil crisis caused by Ukraine issue will push is more speedily towards renewable energy. We will see a faster transition to green and renewable energy due to shortages in crude," said the RBI governor.

There will be a revival of investment in fossil fuels as well as many will be forced to ramp up supply. In India, we have our transition path towards green energy.

When asked on the National Infrastructure Finance Bank, the governor said, "Rs 20000 crore is the beginning. It’s not the end. It’s open to the Govt to step up. While allowing leverage beyond nine times, risks have to be factored in."

The government is mindful of the debt to GDP ratio. Every authority has also to ensure stability and sustainability while looking at growth. We have taken a very considered call. If the situation warrants, we will do it, he said.

On sanctions and the impact of reserves, Mr Das said, "to quote our Prime Minister, India does not believe in expansion, and our reserves are diversified. We don’t foresee any sanctions. Why talk of a problem that is not there? Our reserves are in a good position."

Speaking on the risks from the US Federal Reserve raising rates last week and the expected aggressive rate hike trajectory, Mr Das said the spillovers of the US Fed rate hike remains mixed. We stopped asset purchases last year; we are ahead of the US and others on that front. 

"Two of the largest economies are pulling in different directions. We will be able to maintain the stability of the Indian rupee, irrespective of spillovers," he added.