India’s economy continues to register strong growth, driven by robust domestic demand, despite persistent global challenges, according to the latest Financial Stability Report (FSR) released by the Reserve Bank of India.
The Financial Stability Report is a half-yearly publication that includes inputs from all financial sector regulators and presents the collective assessment of the Sub-Committee of the Financial Stability and Development Council on current and emerging risks to the stability of the Indian financial system.
Benign inflation, fiscal consolidation and prudent macroeconomic policies have strengthened India’s economic resilience, the RBI said in the report released on Wednesday.
The domestic financial system remains sound, supported by strong balance sheets, accommodative financial conditions and low market volatility, the report noted.
However, the RBI cautioned that the economy and financial system face near-term risks from external uncertainties, including geopolitical and trade-related developments.
“These factors could increase exchange rate volatility, dampen trade, reduce corporate earnings and lower foreign investment,” the report said.
It added that a sharp correction in US equities could spill over into domestic markets and tighten financial conditions. However, India’s economy and financial system possess strong buffers to withstand adverse shocks.
At the global level, economic growth has proven more resilient than expected despite trade tensions, geopolitical risks and uncertainty around economic policy. This resilience has been supported by front-loaded trade, fiscal measures and strong investment linked to artificial intelligence.
Nevertheless, risks to the global outlook remain tilted to the downside due to elevated uncertainty, high public debt levels and the possibility of disorderly market corrections, the RBI said.
“Financial markets appear strong on the surface but show growing underlying vulnerabilities. A sharp rise in equities and other risk assets, high hedge fund leverage, the expansion of opaque private credit markets and the growth of stablecoins have heightened global financial system fragilities,” the report added.
Ample global liquidity is supporting risk-on sentiment across asset classes, but a sharp correction—particularly if optimism around artificial intelligence fades—could spill over into the broader financial system amid rising interconnectedness, the RBI said while flagging global macro-financial risks. (ANI)
