Central Bank Sensitivity Study on India's Economy

Impact of Global Growth on India's Economy

• Each percentage-point slowdown in global growth impacts India's economic expansion by 30 basis points.
• Definition: One basis point is a hundredth of a percentage point.
• Key Challenges: 
  1. Geopolitical tensions
  2. Trade disruptions
  3. Weather-related uncertainties

External and Weather-Related Risks

"External spillovers and weather-related events could pose downside risks to growth," stated central bank governor in the foreword to the Financial Stability Report (FSR).

Inflation Outlook and Commodity Prices

• Food inflation outlook remains favorable due to: 
  1. Softening prices
  2. Robust crop production
• Risk of imported inflation is low due to anticipated global growth slowdown, leading to softer commodity and crude oil prices.
• Recent escalation of geopolitical tensions in the Middle East has heightened uncertainty.

Financial System Resilience

• The broader financial system shows resilience, though stress is building in financial markets due to global spillovers.
• This is indicated by a marginal rise in the Financial System Stress Indicator (FSSI) compared to H1:2024-25.

Inflation and Macro-Economic Stability

The near-term and medium-term outlook suggests a durable alignment of headline inflation with the target of 4%, potentially undershooting this target according to the projections of the RBI.

Resilience of the External Sector

The resilience of the external sector is a key factor contributing to India’s macroeconomic and financial stability.