Even as some analysts feel that the RBI’s forex reserves could fall below the $600-billion mark (see graphic), the report warned that rapidly widening trade and current account deficits co-existing with portfolio capital outflows weigh on external sustainability. Forex reserves stood at nearly $607 billion as of April 1 this year — a dip of more than $35 billion from a high of $642 billion in October 2021.
“The near-term global outlook appears grim, caught up in a vortex of geopolitical risks materialising rapidly, strained supply chains and the quickening pace of monetary policy normalisation,” the report said. It added that emerging market economies are bracing to contend with swift shifts in risk sentiments and tightening of global financial conditions that could produce real economic consequences, which may thwart incipient recoveries or even precipitate rocketing inflation and economic downturns.
The report is positive about the country’s ability to meet the economic challenges as it is in a position of strength due to vaccine coverage, financial sector resilience and robust export and remittance inflows. “Going forward, spurring private investment remains a key thrust area for sustaining growth on a durable basis,” the report said. The report also said that the rise in US bond yields and the announcement of a large government borrowing programme have put upward pressure on bond yields in India. “The rise in US Treasury yields exacerbated the dampening of market sentiment. The market borrowing calendar was front-loaded with 59% of the gross market borrowing or Rs 8.5 lakh crore scheduled for H12022-23,” the report said.