Comfortable External Balance Position Key Source Of Resilience In Recent Months For India Says RBI Governor

After witnessing a sharp contraction in GDP by 23.9% in Q1:2020-21 and a multi-speed normalisation of activity in Q2, the Indian economy has exhibited stronger than expected pick up in momentum of recovery, Shaktikanta Das, Governor, Reserve Bank of India stated in a speech. The governor delivered a speech titled Accelerating Financial Market Reforms in India at the 4th Annual Day of Foreign Exchange Dealers' Association of India (FEDAI)) yesterday. The global economy has also witnessed a stronger than expected rebound in activity in Q3. The IMF has accordingly revised its assessment for global growth in 2020 to a less severe contraction than what was assessed in June 2020.

Even as the growth outlook has improved, downside risks to growth continue due to recent surge in infections in advanced economies and parts of India. The monetary policy guidance in October emphasised the need to see through temporary inflation pressures and also maintain the accommodative stance at least during the current financial year and into the next financial year.

A key source of resilience in recent months has been the comfortable external balance position of India supported by surplus current account balances over two consecutive quarters, resumption of portfolio capital inflows on the back of robust FDI inflows, and sustained build-up of foreign exchange reserves. The Government's recent policy focus to enhance India's participation in global value chains, including through production linked incentives for targeted sectors, can leverage on the strong external balance position of India.

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