RBI governor Malhotra flags West Asia, weak monsoon as biggest risks to Indian economy

Geopolitical tensions in West Asia and uneven southwest monsoon rainfall are the biggest risks to India's economy, Reserve Bank of India governor Sanjay Malhotra said Friday.

The warning comes as retail inflation accelerated to 4.38% in June from 3.9% in May, moving above the central bank's 4% midpoint target for the first time since the new consumer price index series was introduced in January 2026. Food inflation rose to 5.32% from 4.78% in May.

The economy is also expected to slow. According to the RBI, growth is likely to ease to around 6.6% in the April-June quarter from an upwardly revised 7.8% in the previous quarter. Full-year growth is expected at around 6.6%, compared with 7.7% in FY26.

Against that backdrop, Malhotra defended the rupee's performance despite a stronger dollar and heightened global uncertainty.

“After the war in West Asia, the dollar has become strong. The currencies of many countries have weakened. If we look at it from a global perspective, India’s rupee situation can be considered normal,” he said in an interview with DD News on Friday.

Rupee pressure, external buffers

Malhotra said India's external sector should remain resilient, pointing to strong services exports, remittance inflows, record foreign direct investment and progress on trade agreements.

The RBI governor also cited recent government measures to ease foreign investment in government securities, rising services exports and remittances, as well as trade agreements with the UK and ongoing negotiations with the European Union and the US, as factors that would support the balance of payments.

On 5 June, the RBI paused rate cuts and, in a coordinated move with the Centre, widened overseas investors' access to government securities, eased investment restrictions for foreign portfolio investors and backed tax exemptions on sovereign bond investments. Experts expect the measures to draw $35-45 billion in inflows in 2026.

“Last year, our gross FDI was around $95 billion, which was a record,” Malhotra said, adding that net FDI (foreign direct investment) in the first two months of the current financial year was around $7 billion.

“In the medium and long term, our balance of payments and our external sector will remain strong. There is no need to worry,” he said.

West Asia, monsoon risks

Malhotra nevertheless said the West Asia conflict remained a risk, even as global financial markets had so far absorbed its impact.

“There is still a risk. We hope peace is established as soon as possible. Infrastructure there has been damaged and it will definitely take time to recover,” he said.

The other key risk is the monsoon, given its importance to India's rural economy.

“We will also have to keep an eye on the monsoon because a large part of our population depends on agriculture, and about one-sixth of our economy is dependent on agriculture,” he said.

India's weather office has forecast 10% below normal rainfall this monsoon season amid developing El Niño conditions. June recorded a 40% rainfall deficit.

Despite those risks, Malhotra said India's growth outlook remained robust, underpinned by what he described as strong macroeconomic fundamentals.

“The reason for this is that our macroeconomic fundamentals are very strong. Whether it is monetary policy, fiscal policy or industrial policy, all our policies are strong, and because of this growth is good,” he said.