Inflation, high commodity prices among geopolitical crisis headwinds; can stay 1 year: CEA Nageswaran
Global threats and headwinds related to geopolitical conditions are the short-term challenges for the Indian economy and could persist for 6-12 months, Chief Economic Advisor V Anantha Nageswaran said today in his keynote speech at the summit. FE Modern BFSI. The global situation is leading to high inflation in most countries; high world prices for commodities heavily dependent on imports (crude oil, edible oil, fertilizers, metals, etc.); tightening of monetary policies in most countries; risk of financial and macroeconomic instability (global spillovers and local risks); likely stock market correction; supply chain bottleneck (delays and shortage of key inputs); potential global recession with an impact on India’s export growth; and the transition to a green economy, he said.
India has been hit by geopolitical conflict just as it emerges from a two-year Covid pandemic. Nageswaran added that despite IMF and World Bank growth reviews, India is still the fastest growing major economy. He said India was becoming inflation intolerant and it was important to stabilize inflation expectations going forward.
Regarding the state of the banking sector, Nageswaran noted that the balance sheets of the banking sector are in good condition with well capitalized banks and lower bad debt ratios. The economic recovery will boost demand for credit and banks will be able to support the country’s economic growth.
Nageswaran also said that banks have a good amount of liquidity in the system, and with the economy recovering, demand for credit rising, the chances of the private investment cycle picking up again, improving capacity utilization. All this will contribute to improving the profitability of the banking sector. Most global rating agencies (such as Fitch, S&P) envisage further improvement of the banking system in the future. “We have to accept that sustained growth rates of 7% or more must be supported by proper identification of economic fundamentals and risks,” he said.