Reserve Bank of India (RBI) governor Sanjay Malhotra has flagged India’s significant economic exposure to West Asia, warning that ongoing global uncertainties in the region could have wide-ranging implications for trade, energy security and remittances, even as the country steps up domestic oil and gas production to mitigate risks.
Speaking at Princeton University, Mr Malhotra says, “West Asia contributes about one-sixth of our exports, one-fifth of our imports, half of our crude oil imports, two-fifths of our fertilisers imports and almost two-fifths of our inward remittances,” underscoring the scale of India’s dependence on the region.
He added that in response to the evolving situation, “domestic production of oil and gas is being ramped up” while efforts are also underway to diversify import sources to cushion the impact of potential disruptions.
The RBI governor emphasised that such external shocks require careful calibration of monetary policy. He says central banks must focus on preventing temporary supply disruptions from turning into persistent inflation.
“The appropriate monetary policy response… is to look through the first-round effect to the extent that it does not feed into second-round dynamics,” Mr Malhotra says, cautioning that prolonged disruptions could embed inflationary pressures into the broader economy.
He reiterated that RBI remains in a 'wait and watch' mode, maintaining a neutral stance in recent policy cycles to retain flexibility as inflation and growth dynamics evolve.
The RBI governor highlighted that India has recorded an average growth of 6.1% over the past decade, significantly outpacing the global average. He attributed this resilience to strong institutional frameworks and policy discipline.
He says RBI plays a key role in enabling growth by maintaining price stability and financial stability, alongside its broader regulatory and developmental responsibilities.
Reaffirming the importance of the flexible inflation targeting (FIT) framework, Mr Malhotra says it has helped bring down average inflation and reduce volatility since its adoption in 2016.
He also underscored the role of fiscal policy in supporting price stability, particularly in managing supply-side pressures. Government measures, such as improving agricultural resilience, strengthening supply chains, and rationalising fuel taxes, have complemented monetary policy efforts.
India has also made progress on fiscal consolidation, with the fiscal deficit declining and capital expenditure increasing in recent years, he noted.
On financial stability, Mr Malhotra says India’s cautious and prudent regulatory approach has strengthened the resilience of its financial system. "We continue to value financial stability. A number of measures have been taken in the last decade. Asset quality review (AQR) launched in 2015, Insolvency and Bankruptcy Code (IBC) 2016; alignment of prudential norms to global standards, and governance reforms in public sector banks (PSBs) are some of the measures."
India’s approach to capital account management and risk controls also helped it avoid severe disruptions during past global crises, he added.
Beyond its core mandates, RBI has played a major role in financial inclusion and digital transformation.
Mr Malhotra pointed to initiatives such as the Jan Dhan programme, which has enabled the opening of over 570mn (million) bank accounts, and the rapid growth of digital payments through the unified payments interface (UPI).
He says India now accounts for nearly half of global real-time digital payment volumes, underscoring the success of its digital public infrastructure.
Concluding his remarks, Mr Malhotra says India’s economic resilience is rooted in strong policy frameworks, credible institutions and sustained reforms.
However, he cautioned that global uncertainties—particularly those emanating from regions like West Asia—require continued vigilance and policy agility.
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