India's Q2 GDP number will surprise on the upside: RBI governor Das

BS BFSI Insight Summit 2023: Shaktikanta Das said India is better placed as compared to other countries to deal with risky geopolitical situations

India's second-quarter gross domestic product (GDP) growth figure, in all probability, will surprise everyone on the upside, Shaktikanta Das, governor of the Reserve Bank of India (RBI), said on Tuesday at the Business Standard BFSI Insight Summit 2023.

In a fireside chat with Tamal Bandyopadhyay, Das said, "Looking at the momentum of economic activity, looking at few early indicators, I can say that the second quarter GDP number, as and when it is released, at the end of November, in all probability will surprise everyone on the upside."

He added that the biggest challenge to the global economy is the evolving geopolitics and its fallout with regard to financial markets and global growth. "New flashpoints are developing, new geopolitical conflict points are evolving. So, geopolitics today poses the biggest risk for growth not just for India, but for the world as a whole."

 

He, however, assured that India is better placed than other countries to deal with such risky situations. 

On India's inclusion in the JP Morgan Bond Index, Das said it is a vote of confidence in India's economy and financial markets but a "double-edged sword". "Inclusion leads to inflow, but on the other side, when weightage goes down, there can be outflow of passive funds."

However, he assured the central bank is well-equipped to deal with outflows and inflows.

"Last year, when outflows happened after the Ukraine war, they were handled in a seamless manner. Also, when inflows took place before the war, we took the opportunity to build up our reserves," he said.

"In India, given the macro and financial sector stability, passive investors keep an eye on the nuances of the economy. I don't think we will see that kind of volatility, but if it takes place, RBI has the capacity to deal with it," he added. 

Das also said that RBI's supervision has been in line with the growing complexities in the sector globally.

Emphasising that the Indian banking sector and non-banking financial companies (NBFCs) are healthy and robust, Das said that the central bank is looking not at it from a micro perspective but is monitoring the structure of their balance sheets.

"A problem which looks small in some corner of the balance sheet of any financial service provider, can become highly risky unless it has been properly understood and mitigated, Our focus is more on that," he said. 

Governor Das added that the RBI has adopted risk-based supervision. "Under this, you have to look at the risks and whether they have been properly addressed by the banks."

He said that after the fallout of some banks in the USA, regulators have woken up to the fact that they need to do much more intensive supervision.

"Our supervision has remained in sync with the growing complexities of the banking sector," he said.

On cryptocurrency, Das said that it is a serious threat to financial stability, especially for emerging market economies. "That risk has to be looked at and managed very seriously," he said.

"We are not trying to stifle innovation, all innovations that are in public interest must be supported," he added. 

Moreover, Das said that the internationalisation of the rupee is not a target but a process.

"We are also looking at it because dependence on one currency for international trade has its risks. It's not a dollar vs rupee debate. But we are looking to increase the footprint of the rupee in international trade, especially with the countries which have high trade volume with India," he said.