Reserve Bank of India Governor Sanjay Malhotra has flagged rising risks to India’s growth, warning that the ongoing West Asia conflict could start weighing on the economy through multiple channels.
“Risks to the baseline projections are tilted to the downside, with uncertainty remaining elevated due to the ongoing West Asia conflict,” Malhotra said after the Monetary Policy Committee (MPC) meeting.
The warning comes even as the central bank projects India’s economy to grow 6.9% this financial year, signalling that while the growth engine is intact, fresh global shocks are building.
The concern is not just the conflict itself, but how it feeds into the economy.
Higher crude oil prices, disrupted shipping routes, rising freight and insurance costs, and shortages of key inputs could all combine to slow activity.
“The West Asia conflict is likely to impede this growth,” Malhotra said, pointing to the risk of supply chain disruptions spilling over into multiple sectors.
The impact could show up in several ways. Costlier energy may push up inflation and widen the current account deficit. At the same time, uncertainty in global markets could hurt investment sentiment and tighten financial conditions.
Despite these risks, the RBI is not sounding alarm bells yet.
India’s economic fundamentals remain strong, supported by steady consumption, improving investment demand, and resilient services activity.
“The fundamentals of the Indian economy are on a stronger footing providing it with greater resilience to withstand shocks,” Malhotra said.
Rural demand remains firm, urban consumption is picking up, and high capacity utilisation is supporting private sector investment.
The external environment, however, is turning more challenging.
Disruptions to key shipping routes and rising logistics costs are expected to weigh on merchandise exports. Slower global growth could further dampen demand.
Services exports are likely to remain relatively resilient, but risks from global volatility remain elevated.
With uncertainty rising, the RBI has chosen to hold rates and maintain a neutral stance.
“The economy is confronted with a supply shock it is prudent to wait and watch the evolving growth-inflation outlook,” Malhotra said.
The message is clear. The central bank is not reacting yet, but it is preparing for a more volatile phase.
India’s growth story remains intact, but it is entering a more uncertain phase.
If crude prices stay high and supply disruptions persist, the impact on growth could deepen. If tensions ease, the economy could regain momentum quickly.
For now, the RBI’s stance reflects cautious optimism, with a clear warning that the balance of risks has started to shift.