West Asia crisis needs close monitoring and proactive steps: RBI

RBI report calls for close monitoring of West Asia conflict and proactive steps to limit spillovers, citing India's oil dependence and rising global volatility

As India imports 80 per cent of its oil requirements, the war in West Asia has disrupted supply, and proactive measures are needed to limit any adverse spillover effect, the Reserve Bank of India’s (RBI’s) state of the economy report has said.

 

This comes even as the ability of the Indian economy to absorb external shocks has strengthened over time, it added.

 

The report also noted that India has progressively diversified its crude oil import sources and augmented domestic refining capacity. It was released minutes before US President Donald Trump’s announcement of a 5-day ceasefire in the West Asia war.

 

 

“Given India’s external dependence on crude oil, the evolving situation requires close monitoring and proactive measures to limit adverse spillovers even though it is mention worthy that the capacity and resilience of the Indian economy to absorb external shocks have strengthened over time, buttressed by its strong growth, sound macroeconomic fundamentals and robust external sector buffers,” the report said.

 

The report further stated that since the conflict started, several policy measures have been implemented to blunt the immediate impact of the disruptions in global fuel supply chains and achieve more effective use of domestic capacity to meet shortfalls.

 

“The creation of an Economic Stabilisation Fund would further provide fiscal headroom and a buffer to proactively respond to global headwinds,” the report, authored by a few RBI staffers, said.

 

It was clarified that the views in the report are that of the authors and not of the central bank.

 

The report said the geopolitical tensions in West Asia intensified into a major conflict, causing significant disruption to key oil infrastructure and critical energy corridors due to the closure of the Strait of Hormuz.

 

In addition, the US administration has also launched fresh probes into trade practices by major trading partners.

 

“All these factors have resulted in increased volatility across the various commodity and financial markets,” it added.

 

It noted that the emerging market currencies came under pressure amid heightened risk aversion while the dollar strengthened on safe-haven demand. “In this environment of heightened uncertainties, major systemic central banks kept policy rates unchanged during February–March,” it said.

 

The six-member rate setting body of the central bank will meet April 6-8 to review the monetary policy.

 

Commenting on domestic financial markets, the report noted the rupee came under renewed depreciation pressures amid elevated global market volatility due to the conflict.

 

The rupee, which settled at a new all-time low of 93.97, depreciated 3.19 per cent in March. During the financial year, it has depreciated over 9 per cent against the dollar in FY26 so far.

 

The report reiterated that India’s foreign exchange reserves remain adequate, providing cover for goods imports for 11.2 months and around 95 per cent of the external debt outstanding.

 

After hitting an all-time high of $728.5 billion for the week ended February 27, 2026, foreign exchange reserves fell around $20 billion in the next two weeks. This is because the central bank aggressively intervened in the foreign exchange market to curb volatility.

 

Latest data showed that foreign exchange reserves were at $709.8 billion for the week ended March 13, 2026.

 

“In the other fixed-income segments, dated government security (G-Sec) yields remained largely range-bound with a softening bias in February, but firmed up thereafter on account of the West Asia conflict and the rise in crude oil prices. The yields rose more at the shorter end,” the report said.

 

Commenting on the new gross domestic product (GDP) series with the revised base year of 2022-23, the report said the new series indicated that the Indian economy remained robust. And, real GDP growth accelerated to 7.6 per cent in 2025-26 from 7.1 per cent a year ago amid heightened global uncertainty.

 

“The growth was driven by strong domestic demand, with private final consumption expenditure maintaining momentum and investment activity remaining robust,” it said.

 

The report said the new series improved the economic estimates by integrating several new data sources. These include goods and services tax (GST), public financial management system (PFMS) and annual survey of unincorporated sector enterprises (ASUSE), among others.

 

The report also noted that the second advance estimates of GDP for 2025–26 indicate sustained resilience of the Indian economy.

 

“High-frequency indicators signal towards economic activity gaining momentum in February,” it added.