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RBI Governor Sanjay Malhotra says if the crisis persists longer, it may also translate into second-order inflationary pressures.
RBI Governor Sanjay Malhotra.
The Reserve Bank of India (RBI) will continue its efforts to deepen financial markets, widen participation, and strengthen institutional frameworks, Governor Sanjay Malhotra said on Friday, underscoring that India’s macroeconomic fundamentals remain robust.
Speaking at the 25th FIMMDA-PDAI Annual Conference in Amsterdam, Malhotra noted that the timing of the event is significant, as the global financial system is currently grappling with heightened uncertainty. These challenges, he said, are affecting both the real economy and financial markets.
He pointed to geo-economic fragmentation, driven by tariffs, trade barriers, and industrial policies, as a key force reshaping global supply chains and disrupting the free flow of capital. This, in turn, is contributing to fragmentation in financial flows.
“Overlaying these challenges is the recent escalation of geopolitical tensions in West Asia. Energy prices have risen sharply amidst damage to energy infrastructure and disruptions in supply chains. It has already affected economic activity. If the crisis persists longer, it may also translate into second-order inflationary pressures,” he said.
Despite global headwinds, Malhotra highlighted India’s economic resilience, noting that domestic demand continues to be supported by strong consumption and sustained public investment. The government’s focus on capital expenditure has also helped crowd in private investment and expand productive capacity.
“Resultantly, we have recorded an average growth of 8.2 per cent during 2021-25. In 2025-26, the economy is estimated to have grown by 7.6 per cent. Growth in 2026-27 is projected at 6.9 per cent,” he said.
He added that corporate balance sheets have strengthened on the back of improved earnings, while fund-raising through public markets has remained healthy over the past two financial years.
Malhotra emphasised that Indian financial markets have seen significant maturity in recent years, driven by consistent policy efforts. However, he noted that further progress is needed and outlined five broad areas for improvement.
“We will continue to deepen financial markets, broaden participation, and further strengthen institutional frameworks. We will continue to strive for efficiency, consumer protection, fairness, transparency, and ethical conduct. In this pursuit, we will continue to assess and meet the emerging market needs,” he said.
He also stressed that the RBI stands ready to deploy policy measures, if required, to manage spillovers and maintain orderly market conditions. At the same time, he underlined that building financial resilience is a shared responsibility across institutions.
Highlighting the role of data in policymaking, Malhotra said trade repositories must enhance the quality and availability of data to enable better risk assessment.
Turning to global risks, he flagged high public debt levels in major economies as a concern.
“Their continued fiscal expansion has made it difficult for them to return to the path of fiscal consolidation that was expected post the pandemic-related stimulus,” he said.
He added that rising geopolitical tensions are pushing up defence spending, which could strain fiscal sustainability. Additionally, he cautioned that stretched valuations in certain asset classes, especially equities, including some technology stocks, may have broader implications across markets and geographies.
(With PTI inputs)
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