Even as the global economy is projected to contract significantly in 2023 following the COVID-19 lockdown, Russia-Ukraine war and global financial markets crisis, the Indian economy remains resilient in this hostile and uncertain international environment, RBI Governor Shaktikanta Das said on Friday.
"The global economy is still marred by shocks and uncertainty. Financial markets remain volatile and the geopolitical situation continues to be tense. International food, energy and commodity prices have eased but uncertainties do remain. Inflation remains high and broad-based across countries. The IMF has projected contractions in over one-third of the global economy," Das said.
On the growth front, projections are now veering around to a softer recession as against a severe and more widespread recession projected a few months back," he said at 22nd FIMMDA-PDAI Annual Conference in Dubai on Friday.
However, he said, "In this hostile and uncertain international environment, the Indian economy remains resilient, drawing strength from its macroeconomic fundamentals. Our financial system remains robust and stable."
Das said that India's Current Account Deficit (CAD) is eminently manageable and within parameters of viability even as he stressed on the need for larger and deeper financial markets to drive India's growth and aspirations amid a global gloom.
He said that the banks and corporates are healthier than before the crisis. Bank credit is growing in double digits. India's strong services exports and remittances will help in softening the impact on slowing of merchandise demand globally.
"India is widely seen as a bright spot in an otherwise gloomy world. Our inflation remains elevated, but there has been a welcome softening during November and December 2022. Core inflation, however, remains sticky and elevated."
During the COVID-19 pandemic, the government bond market remained resilient, with bid-ask spreads being the lowest among peers nations. "The yield curve has also evolved in an orderly manner without any undue volatility, despite the significantly higher government borrowing," Governor said.
He further said that the journey of Indian financial markets has been driven by two key objectives – stability and development. "Crisis management has been a key component of this journey. And the pursuit of developmental reforms, with the key objective of widening and deepening of financial markets was continued even amidst the worst storms," he added.
Protectionism, de-globalisation growing
"On the external front, de-globalisation and protectionism are gaining ground as witnessed during the recent global supply-chain shock. It is thus necessary to build and strengthen bilateral trade relations to deal with such challenges. India has recently signed bilateral trade agreements with the UAE and Australia and more such agreements are works in progress," the Governor said in the speech.
Das said that we still see challenges when we look ahead but can prepare for them with optimism and confidence. Indian financial markets have developed appreciably over the years and liquidity in the government securities and the overnight money markets have grown as well. In India, we have come a long way in the development of financial markets, but this remains work in progress, he added.
"The Reserve Bank and stakeholders like FIMMDA and PDAI need to work together and focus on certain specific areas. Secondary market liquidity in g-secs is concentrated in a few securities and tenors. The MIBOR-based OIS remains the only major liquid product in the interest rate derivative market."
"A term money market remains absent, notwithstanding a host of facilitative policy measures. Access of the retail segment to markets, especially derivative markets, needs to improve further."
"In the forex markets, while corporates benefit from the tight bid-ask spreads,
smaller users continue to face pricing disadvantages notwithstanding regulatory requirements for fair and transparent pricing. Likewise, there remains a need for improvement in ensuring liquidity for retail investors in the government securities markets," Das said.
Further he said that greater challenges will emerge as the footprints of Indian banks increase in the offshore markets, the range of products expand, non-resident participation in domestic markets grows and as capital account
convertibility increases.
"Market participants will have to prepare themselves to manage the changes and the risks associated with globally integrated markets. The achievement of desired outcomes is contingent on financial institutions and market participants taking forward the reform agenda so that we have more vibrant and resilient financial markets," he said.
