India growth recovery faces headwinds from geopolitical tensions, says RBI Deputy Governor Michael Patra

Patra said that though the third wave of the pandemic had a relatively minor impact as reflected in high-frequency indicators.

Patra said there are upside risks to the inflation projections made by the RBI`s monetary policy committee

India`s growth story remains as weak as it was during the 2013 `taper tantrum` and geopolitical tensions in Ukraine and Russia are further likely to hurt a recovery, Reserve Bank of India deputy governor Michael Patra said on Friday.

"In a sense, India`s growth story remains as weak as it was at the time of the 2013 taper tantrum. The recent reverberations of war have in fact, tilted the balance of risks downwards," Patra said at an event organised by the IMC Chamber of Commerce and Industry.

Patra said that though the third wave of the pandemic had a relatively minor impact as reflected in high-frequency indicators, gross domestic product for full year 2021/22 is expected to rise by only 1.8% from its pre-pandemic levels.

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The government`s thrust on capital expenditure in 2022/23 can be the gamechanger by enhancing productive capacity, crowding in private investment and strengthening aggregate demand amid the conducive financial conditions engendered by the RBI, the deputy governor said.

Patra said there are upside risks to the inflation projections made by the RBI`s monetary policy committee on the back of recent geopolitical developments and the MPC will provide a thorough reassessment in its April meeting.

"But the focus of monetary policy on price stability with clear accountability and the government’s proactive responses to keep prices in check provides confidence that India will weather this storm," he added.

There is headroom for the government to further lower duties on fuel and that can help delay the passthrough of high crude to pump prices, Patra said.

"While the fallout of the geopolitical situation is being assessed and will be factored into our projections, it is reasonable to treat it as a supply shock at this stage in the setting of monetary policy," he added.

Since the onset of the pandemic, India has been encountering episodes of rising inflation but the headline number has stayed in single-digit and has tended to revert back to the target as each supply shock has receded, Patra said.

"Global spillovers are impacting core inflation on an ongoing basis and keeping it elevated," he added.

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