While going through the RBI and research analyst conference, The RBI addressed four major risk in its latest policy,and biggest and the first risk factor stems from our vulnerability in the external sector, in particular sudden stop and reversal of capital flows that we saw over the last 10 weeks. It is not clear if financial markets have factored in the full impact of the prospective tapering of QE or whether we will have some spillover impact every time there is some announcement from advanced economies, in particular the US Fed.
The second risk factor is the large CAD, above the sustainable level for 3 years in a row which has affected our external payment situation. Most external vulnerability indicators have deteriorated indicating that the economy’s resilience to external shocks is eroded.
The third risk factor is the continuing weak investment environment which remains weak because of a number of factors such as cost and time overruns, high leverage, deteriorating cash flows, erosion of asset quality and muted credit confidence.
The final risk factor is something that has stayed with us for the last several policy reviews, which is the supply constraints in the economy. India is unique among major countries in the world that we are a supply constrained economy. There are a number of supply constraints especially in the food and infrastructure sectors which affect our growth and inflation and it is very important that these constraints ease in order that our growth improves and inflation remains subdued.
I read the whole script, It was a great read and great questions were asked by the analyst and suggestions being made to RBI.
But I do not know why there was no question being asked on the above risk factors directly .
Here is the full script : RBI Transcript