With foreign exchange (forex) reserves of $677 billion, India is comfortably placed to deal with any effect of war [in Ukraine] or any challenges with regard to financing of the Current Account Deficit (CAD) is concerned, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Monday.
“The economy is better placed today,” Mr. Das said in an address to the National Council meeting of the Confederation of Indian Industry (CII) in Mumbai. “In external sector we are better placed but we are living in an uncertain world. So there is no reason for complacency. We have to be watchful and monitoring very closely,” he added.
The RBI Governor said as per latest data India had forex reserves of $622 billion, while another $55 billion would be coming in shortly from the forward markets.
Asserting that India was better placed than European economies in the backdrop of the war, Mr. Das said that high frequency indicators were broadly in the green and that, unlike the 2013 taper tantrum, in the run up to the current crisis the country’s CAD was “very low” and forex reserves were “very high”. “In the last three years our forex reserves have gone up by $270 billion,” he said.
Highlighting that India was monitoring the crude and commodity prices and the volatility very closely, he expressed the hope that inflation would not cross 6% in FY23.
“I am emphatically saying that while we are watchful and monitoring all the trends we stand committed and are confident of dealing with any emerging situation and dealing with any emerging challenges,” he stressed. “That is the level of commitment and confidence that is there in the RBI and like in the past we can do it in the future as well,” he added.
To a question on whether there was a risk of stagflation, Mr. Das asserted that India faced no such prospect. “The RBI and the Monetary Policy Committee (MPC) see no fear of stagflation in India,” Mr. Das said.
He said despite the COVID crisis Indian banks were better placed than in the past. While their gross NPA level reached an all-time low of 6.5%, the system-wide capital adequacy ratio was at 16%, and the provision coverage ratio was 69%.
He said under the current circumstances the RBI had gone beyond the rule book to support growth and recovery.
“The RBI for the last two years has remained supportive of growth and we have resisted expectations and temptations of reversing our monetary policy and moving away from accommodative stance,” he added.
Acknowledging the prevailing global uncertainties and also the fact that the primary responsibility of the RBI was to maintain price stability, Mr. Das said that though the current crisis in Europe could have an impact on inflation in India, the possibility of a prolonged breach of the laid down tolerance band was remote.
On the exchange rate, he stated that the policy of the RBI has been to intervene only to address excessive volatility. The Indian rupee had deprecated only by 0.4% this fiscal till March 17 and given its reserves, RBI was confident of exchange rate stability.
He also assured the gathering of industrialists of adequate liquidity to meet the credit needs of the economy.