Mumbai, Apr 23 (PTI) Indian economy remains stable despite West Asia conflict pushing energy prices and input costs higher, and supply chain disruptions posing upside risks for inflation, according to an RBI Bulletin released on Thursday.

An article published in the Reserve Bank's April Bulletin said that the conflict in West Asia has intensified pressures on global supply chains in March, with some easing observed in the first half of April.

It also said that domestic economic activity displayed resilience in many segments, with a slowdown in a few others.

"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 said.

Though inflation remains within the tolerance band, upside risks have increased, driven by supply-side disruptions, including weather-related uncertainties, said the article on 'State of the Economy'.

Possible second-round effects with the supply shock transforming itself into a demand shock also warrant careful and continuous assessment, it added.

"The temporary two-week ceasefire between the US and Iran has, however, provided some breather to the global economy. The strong macroeconomic fundamentals should support the Indian economy to maintain its resilience to withstand such shocks," it said.

The article further said the Indian economy continues to hold its ground despite facing a major supply shock due to the conflict in West Asia.

In March, available high-frequency indicators of economic activity displayed divergent trends -- demand conditions remained resilient, despite some pockets of slowdown in economic momentum.

The rural economy played an important role in sustaining resilience in demand in March, the article said.

Automobile sales growth was driven by strong retail demand supported by post-GST momentum.

Increased electric vehicle (EV) demand, particularly in the two-wheeler segment, also contributed to the overall momentum.

The article noted that the ongoing conflict in West Asia impacted the trade negatively, as India relies heavily on Gulf shipping routes.

The conflict led to an average 54 per cent decline in exports and imports from West Asia in March. Imports from Russia saw a sequential uptick.

The money market and bond yields moderated after the temporary ceasefire in West Asia.

"A slowdown in imports and expansion in exports narrowed the trade deficit to a nine-month low. Foreign portfolio investment (FPI) flows remained volatile, although net foreign direct investment (FDI) turned positive in February," the article said.

The central bank added that the views expressed in the Bulletin article are those of the authors and do not represent the views of the Reserve Bank of India. PTI NKD NKD BAL BAL

Supply chain disruptions and energy cost pressures test Indian economic resilience amid West Asia conflict. Indian economy remains resilient despite the West Asia conflict driving up energy prices, input costs and supply chain pressures, while inflation continues within the tolerance band. The article warns that prolonged conflict and delayed restoration of supply chains may raise energy costs, disrupt trade flows and create financial market spillovers, and it notes the need to watch for possible second-round effects if the supply shock passes into broader demand-side pressures.