Signs Of Economic Resilience But Internal And External Risks Need Monitoring
Indian Express
In the fourth quarter of the last financial year, the Indian economy grew at a healthy pace, despite widespread disruptions to energy markets and global trade in March due to the West Asia conflict.
In the months thereafter, even as the conflict dragged on, some of the high-frequency indicators suggest that the economic momentum has sustained to an extent. This is evident in e-way bill generation, PMI indices and electricity consumption, as the finance ministry’s latest monthly economic review points out. However, as the report also notes, there are some signs of moderation. For instance, the index of eight core industries grew by just 1.1 per cent during April-May.
India entered this crisis with high growth, low inflation and strong bank and corporate balance sheets. These, as RBI Governor Sanjay Malhotra notes in the latest financial stability report, have “helped preserve macro-financial stability”. The health of the financial system can be gauged across a range of indicators. Banks have seen a decline in bad loans — gross NPAs were at 1.8 per cent in March 2026, there were no signs of any build-up in stress. Their capital position remained comfortable — capital to risk weighted assets ratio was at 17.7 per cent — the liquidity buffers were strong and profitability indicators stable. In fact, the stress tests conducted by the central bank suggest that banks can cope with adverse shocks. Funding, though, is a challenge. Similarly, the corporate sector also appears to be in sound health. Leverage continued to fall, while its ability to service its debt obligations showed improvement. Yet, despite this, private corporate investments remain depressed. Alongside, as household debt has continued to edge upwards — standing at 45.5 per cent by the end of September last year — it is a matter of concern that borrowing for consumption purposes, not asset creation, is the key driver of loans.
Uncertainty around West Asia persists. A deficient monsoon so far has impacted kharif sowing, while a strengthening El Niño may pose risks for the ensuing winter-spring rabi crop. Going by the prolonged food inflation during 2023-24, which was also an El Niño year, this could have implications for inflation and demand — between July 2023 and December 2024, food inflation averaged 8.5 per cent. These internal and external risks need close monitoring.