Unfolding global developments pose downside risks for Indian economy, RBI says

The Reserve Bank of India in its March 2022 Bulletin has said that the ongoing geopolitical crisis, i.e, the Russia-Ukraine war, has heightened the uncertainty clouding the global macroeconomic and financial landscape.

The global economy’s recovery from the Covid-19 pandemic is incomplete and the spiraling oil & gas prices and unsettled market conditions now pose fresh headwinds, it said.

However, the Indian economy is making steady progress on the domestic front, it says. “India’s macroeconomic fundamentals remain strong. Unfolding global developments nevertheless pose downside risks in terms of spillovers,” the bulletin reads.

RBI has highlighted that consumer and business confidence is rising alongside improvement in demand conditions. “On the supply side, a resilient farm sector and a sustained retrieval in both industrial and services sectors are broadening the recovery.”

RBI says that also said that a rapid and large withdrawal of fiscal support risks pushing the economy over the cliff into a sharp downturn. “Exiting policymakers have to contend with the razor’s edge trade-off between cliffs and ramps,” RBI added.

‘Crypto-tech underpinned to evade government controls, banning an advisable option’

The bulletin has highlighted that cryptocurrencies are typically global products whose defining characteristic is that they are outside official control and cannot be regulated by country-specific regulators. RBI has further laid down the rationale to keep cryptocurrencies ‘away from formal financial system’.

“Cryptocurrencies have specifically been developed to bypass the regulated financial system. These should be reason enough to treat them with caution,” RBI says.

It further says that banning cryptocurrencies is the most advisable option available. “Banning cryptocurrency is perhaps the most advisable choice open to India. We have examined the arguments proffered by those advocating that cryptocurrencies should be regulated and found that none of them stand up to basic scrutiny.”

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