Blitz Bureau
NEW DELHI: The impact of the West Asia conflict on the Indian economy dominated discourses at the last Monetary Policy Committee (MPC) meeting held from April 6-8 in Mumbai with all members expressing serious concern, minutes of the MPC meeting released recently indicate.
The ceasefire announced by US President Donald Trump on April 7 perhaps brought temporary relief as all six members unanimously voted for a status quo on April 8.
“With the announcement of the temporary ceasefire, there is a possibility of an early resolution of the conflict and normalisation of supply chains. In such a situation, it is prudent to wait and watch, before making any decisive move,” MPC chairman and RBI Governor Sanjay Malhotra wrote in the minutes.
“The West Asia conflict poses challenges to the Indian economy through a number of channels — exports, supply of critical commodities, elevated energy and other commodity prices, remittances, uncertainty, subdued global demand, etc.,” he observed.
“Overall, geopolitical uncertainties have intensified with the conflict widening its spread over last month. As a result, supply chain disruptions, that may take longer to subside fully and restore the logistics network, pose downside risks to growth and upside risks to inflation,” he stated. Nevertheless, the Indian economy is on a much stronger footing at the current juncture, he pointed out.
“The West Asia conflict poses challenges to the Indian economy through a number of channels — exports, supply of critical commodities, elevated energy and other commodity prices, remittances, uncertainty, subdued global demand, etc.,” RBI Governor Sanjay Malhotra wrote in the minutes.
External member Nagesh Kumar stated that the West Asia conflict had affected the Indian economy through several channels.
“India’s high dependence on crude oil, natural gas and fertiliser imports from the West Asia is the most important channel for transmission of spill-overs. The blockage of the Strait of Hormuz has disrupted the supplies and has sent crude prices through the roof. Crude oil prices are an important factor affecting India’s economic growth and inflation outlook,” he observed.
“Despite tentative indications of a cessation of hostilities in the West Asia conflict and a consequent easing of tight global financial conditions, uncertainty regarding persisting dislocations of global supply chains remains heightened,” external member Saugata Bhattacharya wrote.
“The level of uncertainty on the external front in general and the West Asia conflict in particular is high at this point. There seem to be many unknown unknowns whose direct and indirect economic impacts are unquantifiable,” said external member Ram Singh.
Deputy Governor and internal member Poonam Gupta stated that the West Asia conflict had “afflicted” the global and Indian economies with significant intensity.