SBI chief flags inflation, growth worries

MUMBAI: State Bank of India chairman Challa Sreenivasulu Setty has warned that the ongoing conflict in the Gulf region could weigh on growth and rekindle inflationary pressures, even as India's macroeconomic fundamentals remain resilient.

In his message to shareholders in the bank's annual report, Setty said: "The financial year gone by unfolded against a backdrop of heightened geopolitical tensions, evolving trade dynamics, and persistent global economic uncertainty." He added: "The global gross domestic product (GDP) growth is projected to slow down, largely on account of the West Asia conflict."

He believes the risks are not merely cyclical but structural, noting that "elevated public debt, volatile energy prices, and increasing geopolitical fragmentation continue to pose risks to long-term global growth." For India, while the near-term outlook remains strong, the spillover effects of the conflict could become harder to contain.

"The recent challenges posed by West Asia conflict are proactively being accommodated through regulatory dispensation by the RBI and fiscal measures... however, the economic fallout of the conflict may lead to lower GDP growth and higher inflation in FY 2027," he said.

Setty underscored that India has so far weathered global turbulence better than most peers supported by "strong domestic demand, sustained public investment, improving private consumption, and policy continuity." He added that "India's macroeconomic fundamentals remain robust, with inflation likely to remain within the RBI's comfort band and fiscal policy maintaining a prudent balance between growth and consolidation," but cautioned that external shocks could test this equilibrium.

Setty suggested that managing volatility in energy markets and capital flows will be critical as geopolitical risks persist. His remarks indicate that policymakers and banks alike may need to remain agile in responding to sudden shifts in inflation and growth dynamics.