An article on 'State of the Economy' published in the Reserve Bank of India's (RBI) April bulletin has said that ongoing conflict in West Asia and supply chain disruptions could pose challenges to the domestic economy in the form of higher energy costs, input cost pressures, disruption in trade flows and spillovers in financial markets.

It stated that the conflict in West Asia has intensified stress on worldwide supply chains in March, but some improvement was observed in early April. Domestic economic activity remained strong across many sectors, with a slowdown in a few others. The conflict’s duration and intensity, coupled with its impact on energy and other infrastructure, increase uncertainty around inflation and growth prospects.

It stated ‘If the conflict persists and supply chains are not restored early, it may create challenges to the domestic economy in the form of higher energy costs, input cost pressures, disruption in trade flows and financial market spillovers.’ It pointed out though inflation is within the target range, the risk of an increase has grown, driven by supply-side disruptions, including weather-related uncertainties. The RBI said the views expressed in the Bulletin article are of the authors and do not represent the views of the central bank.