The Reserve Bank of India says strong forex reserves and macroeconomic fundamentals will help India withstand global shocks, but warns the West Asia conflict requires close monitoring due to oil dependency
The Reserve Bank of India (RBI) on Monday said India’s economy remains resilient enough to weather external shocks, but warned that the escalating crisis in West Asia warrants close monitoring and proactive policy action, given the country’s heavy reliance on crude oil imports.
“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.
The central bank said geopolitical tensions and fresh trade frictions have revived concerns over energy security, tariffs and global supply chains, while also increasing volatility across commodity and financial markets.
Despite these risks, the RBI emphasised that India’s ability to absorb external shocks has strengthened over time.
“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 RBI said.
Forex reserves offer strong buffer
A key pillar of this resilience is India’s foreign exchange reserves, which the RBI said remain “adequate” to cushion the economy from global turbulence.
“Foreign exchange reserves remain adequate to provide a cushion against external shocks,” the central bank noted.
India’s forex reserves
stood at $709 billion as of March 13, after hitting a record $729 billion in February. The reserves provide cover for about 11.2 months of goods imports and roughly 95 per cent of the country’s outstanding external debt.
The RBI has also been actively intervening in currency markets to curb volatility. The rupee, which has weakened 8.7 per cent in the current fiscal year and about 2.9 per cent since the onset of the West Asia conflict, ended at 93.97 against the US dollar on Monday, reportedly supported by central bank dollar sales.
Energy security, diversification in focus
On the energy front, the RBI highlighted efforts to reduce vulnerability through diversification and policy intervention.
“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.
India has
progressively diversified its crude import sources and expanded refining capacity in recent years, helping mitigate supply risks.
The report also referred to the government’s plan to create an economic stabilisation fund to build buffers against global shocks and provide additional fiscal flexibility in times of crisis.
Global volatility
The RBI flagged a sharp deterioration in global conditions in recent weeks. Global uncertainty rose in February after four months of easing, driven by renewed trade policy tensions following a US court ruling on tariffs.
Since late February, tensions in West Asia have escalated into a major conflict, disrupting key energy infrastructure and supply routes, including the Strait of Hormuz.
These developments have triggered sharp swings in commodity prices—especially crude oil—and increased volatility across financial markets, with emerging market currencies coming under pressure and investors shifting towards safe-haven assets.
With inputs from agencies.
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