Yes, risks are rising, but India can manage them: What RBI Guv Malhotra said

RBI flags rising risks from the West Asia conflict through energy prices and supply disruptions, but says India's economy is stronger and better placed to withstand shocks than before

In its April meeting, the decisions of which were announced on Wednesday (April 8), the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has summarised that yes, there are looming risks due to the West Asia war, but the domestic economy is in a stronger position to withstand such shocks.

 

While keeping the repo rate unchanged and maintaining its ‘neutral’ stance, the MPC said the evolving situation poses uncertainty, particularly through energy prices and supply disruptions. However, India’s current economic situation is better than during previous shocks.

 

“… the intensity and the duration of the conflict in West Asia and the resultant damage to the energy and other infrastructure add risk to the inflation and growth outlooks. However, the fundamentals of the Indian economy are on a stronger footing, providing it with greater resilience to withstand shocks now than in the past. The economy is confronted with a supply shock. It is prudent to wait and watch the changing circumstances and the evolving growth-inflation outlook,” RBI Governor Sanjay Malhotra announced.

 

 

How RBI sees supply shock from West Asia conflict affecting India

 

The RBI has characterised the current situation as a supply shock, which is being driven largely by disruptions in global energy and commodity markets.

 

According to Governor Malhotra, the conflict has led to volatility in international energy prices, which has already begun to pass through to domestic fuel prices such as premium petrol, LPG, and diesel for industrial use.

 

“Looking ahead, elevated energy and other commodity prices coupled with supply shock due to disruptions in the Strait of Hormuz would act as a drag on domestic production in 2026-27,” Malhotra said.

 

However, the Governor also noted a few factors that would continue to support domestic demand in the face of geopolitical uncertainties. “Sustained momentum in [the] services sector, persisting impact of GST rationalisation, rising capacity utilisation in manufacturing, and healthy balance sheets of financial institutions and corporates should continue to support domestic demand,” he said.

 

What are the upside risks to inflation from Iran war and energy prices?

 

Taking these factors into account, the RBI has projected CPI inflation for FY27 at 4.6 per cent. The central bank also said that persistently elevated energy prices due to the conflict, along with possible El Niño conditions that could affect the monsoon, pose upside risks to inflation.

 

This has added uncertainty to the near-term inflation outlook. Malhotra outlined that headline inflation rose to 3.2 per cent in February from 2.7 per cent in January, largely due to unfavourable base effects, even as momentum remained muted.

 

However, at the same time, robust rabi crop prospects are expected to provide some near-term relief on food prices.

 

How government policies and domestic demand may cushion growth risks

 

On growth, the RBI maintained that domestic activity remains resilient, supported by private consumption and investment.

 

Real GDP growth for FY26 is estimated at 7.6 per cent, while FY27 growth is projected at 6.9 per cent, with quarterly projections at 6.8 per cent, 6.7 per cent, 7.0 per cent, and 7.2 per cent.

 

The RBI Governor said that an uptick in domestic manufacturing will support India’s growth trajectory amid uncertain times.

 

“The Government’s focus on scaling up domestic manufacturing in several strategic and frontier sectors announced in the Union Budget 2026-27 bodes well for India’s ensuing growth trajectory,” Malhotra said.

 

Why RBI is maintaining a cautious, watchful policy stance

 

The MPC said heightened geopolitical uncertainty has complicated the policy trade-off between inflation and growth.

 

While headline inflation remains below target and core pressures are muted, risks from energy prices, supply chain disruptions, and possible second-round effects remain.

 

The next RBI MPC meeting is scheduled for June 3 to June 5.