“Given India’s external dependence on crude oil, the evolving situation requires close monitoring and proactive measures to limit adverse spillovers,” the RBI said in its March State of the Economy report.
It said the capacity and resilience of the Indian economy to absorb external shocks have strengthened over time, buttressed by strong growth, sound macroeconomic fundamentals and robust external sector buffers.
The report added that foreign exchange reserves remain adequate to provide a cushion against external shocks. Forex reserves were at $709 billion as of March 13, after touching an all-time high of $729 billion in February.
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The RBI said reserves provide cover for 11.2 months of goods imports and around 95% of the country’s outstanding external debt.
The central bank has been seen actively selling dollars to prevent excessive volatility and support the rupee, which has fallen 8.7% this fiscal year and 2.9% since the start of the war. The rupee ended at 93.97 on Monday after the RBI likely sold dollars to prevent it from breaching the 94 level.On energy security, the report said India has progressively diversified crude import sources and expanded domestic refining capacity.
“Since the start of the conflict, several policy measures have been implemented to blunt the immediate impact of the disruptions in global fuel supply chains and to achieve more effective use of domestic capacity to meet shortfalls,” it said.
The article also noted the government’s decision to create an Economic Stabilisation Fund to build buffers against global headwinds.
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Economic activity picked up in February, as reflected in high-frequency indicators for fuel consumption, trade and logistics.
Global uncertainty rose in February after four straight months of easing, driven by a pickup in trade-policy uncertainty following a US Supreme Court ruling on import tariffs, the RBI said.
Since late February, Middle East tensions have escalated into a major conflict, shutting the Strait of Hormuz and disrupting key oil infrastructure and energy corridors, while the US administration launched fresh probes into the trade practices of major partners, it added. These developments have stoked volatility across commodity and financial markets.