Despite global uncertainties, banking sector issues, the economy stands out in terms of growth as compared to other emerging markets and the Indian financial system remains stable, a report released by Reserve Bank today said.
“Being a net commodity importer and with efforts to improve the ‘ease of doing business’, India at this juncture stands out amongst the emerging markets cohort in terms of growth,” RBI’s Financial Stability Report (FSR) said.
It added the country’s financial system remains stable, even as the banking sector is facing significant challenges.
FSR said as global uncertainties and dynamics impact the country with its increasing level of integration with the global economy, continuation of sound domestic policies and structural reforms become important.
There is a need to bolster gross fixed capital formation while maintaining robust trends in consumption to sustain higher levels of growth, it said. The sharp decline in international crude oil prices since the third quarter of fiscal 2015 has provided terms of trade benefits leading to relatively lower imports and reduced external vulnerabilities.
According to the International Monetary Fund, the terms of trade benefits are estimated to be the highest for India among all G-20 countries in the recent months.
“India being the third largest consumer of oil, there is a need to be alert to the risks of commodity price cycle reversals and the economy’s preparedness to readjust,” the report said.
Already oil prices have significantly moved up in the recent period since their February lows of below $30 a dollar.
As of now the country’s external position looks robust with forex reserves at historic highs ($363.83 billion) and low trade deficit, helped by lower crude prices, it said.
FSR said the downside of prolonged low oil prices also needs to be reckoned in terms of likely reduction in private transfers and remittances.
“Hence, there may not be any room for complacency in the current global scenario,” the report added.
It said though efforts are being made to contain the revenue deficit and to rationalise subsidies, there is a need to increase the tax revenues going ahead by expanding the tax base further.