Rising Geopolitical Conflicts Biggest Risk To India's Growth Outlook: MPC Member Jayanth Varma

Jayanth R Varma, a member of the RBI’s MPC said that inflation and inflationary expectations appear to be moderating and high inflation will certainly not become the ‘norm’ in India

Jayanth R Varma, a member of the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC), on Wednesday said that the biggest risk to India’s growth outlook is an escalation of geopolitical tensions, especially if these tensions spread to the Asian region, the PTI reported.

According to the report, Varma, who is cautiously optimistic about the Indian economy for several reasons, said that inflation and inflationary expectations appear to be moderating and high inflation will certainly not become the ‘norm’ in India.

“The MPC is determined to bring inflation down close to the target rate of 4 per cent as quickly as possible without imposing intolerable costs in terms of economic growth. I would like to emphasize that high inflation will certainly not become the norm in India,” he said.

In its latest MPC meeting in August, the RBI increased the benchmark lending rate by 50 basis points to 5.40 per cent to tame surging inflation.

The central bank has been tasked by the government to ensure that retail inflation remains within the range of 2-6 per cent.

“Finally, inflation and inflationary expectations appear to be moderating (both in India and globally) and this would reduce one of the major headwinds for the Indian economy," Varma mentioned.

Retail inflation based on Consumer Price Index (CPI) eased to 6.71 per cent in July but remained above RBI's tolerance level for the seventh month in a row. The central bank had projected retail inflation to average 6.7 per cent in 2022-23.

Verma pointed out that in the current global environment, exports might not be as buoyant as they were in the past. Turning to the negative side, he said while India is not an export-driven economy, an export slump would be a drag on growth if it persists. “The biggest risk to the growth outlook is that of an escalation of geopolitical tensions especially if these tensions spread to the Asian region,” he said.

Russia began its military offensive against Ukraine on February 24. Western nations, including the US, have imposed major economic and other sanctions on Russia following the aggression.

Varma said inflation would be above the target for several quarters, but there is enough reason to believe that the worst is over, unless the world is confronted by another unforeseen global shock, while adding, “Any adverse shocks to economic growth (domestic or global) could cause a steeper decline in inflation than is currently expected.”