A soft landing of the global economy, which has experienced tremendous stress over the past several years, is increasingly a possibility, Union Finance Minister Nirmala Sitharaman said on Friday.
Observing that better days are ahead primarily because of the coordinated action between countries and multilateral financial institutions, the finance minister, at the same time, sounded a note of caution that economies are not really picking up that much yet. “The largest sense which prevailed in the two-day discussions, both of the International Monetary Fund and also of the World Bank, is that there will be a soft landing. The efforts by the Fund, the central banks, and all institutions and governments have kept inflation down for some meaningful period. Therefore, a soft landing is increasingly a possibility,” Sitharaman told a Washington, D.C.-based global think tank.
“Then that reasonable growth number will come from even the advanced economies, certainly not in the negative area. The coordinated action between countries to manage any supply chain shocks that have characterized the global economy in the last, let us say, at least two years, are being faced by countries with a lot more preparedness, and therefore the sense is we can only have better days than what we have seen in the last few years,” Sitharaman said during her appearance at the Centre for Strategic and International Studies (CSIS) think tank.
“But with that said, all of us had to sound a note of caution because economies are not really picking up that much yet. They are all right; you see them not going down further, but there is still a moderated world trade picture. Demand in the advanced economies is not really all that attractive, so global trade doesn’t see possibilities of great recovery sooner,” she said.
“As a result, countries that are very dependent on commodity exports or being part of the global value chain are not seeing great demand pick up. So, the picture that is emerging is positive, but it’s not going to rapidly change the situation. Every country has borrowed much more than they ideally would do for the sake of recovery from COVID, whether that borrowing was quality borrowing, in the sense of borrowing for quality expenditure or not, is on their balance sheet,” she said.
“As a result, getting some kind of control over fiscal deficit will be a challenge for most countries. If not a drastic control over it, gradually at least there should be measures to bring the fiscal deficit to some reasonable number. This is the kind of picture which has emerged, and I quite agree with it because we (India) are growing fast on the back of one domestic market. We have a challenge also in that we still have quite a few imports coming. But with the commensurate increase in exports not happening because our traditional export geographies are not really picking up, we have a challenge that is more external than internal,” the minister said.
Responding to a question, Sitharaman said India is trying to grow at the fastest possible rate. “But what I would counterpose as a question is, what is holding the investors back? Why do global investors, going by the textbook, where economic activity is good, robust, and dynamic, money flows there—is the normal textbook assumption. I want to ask where are the investable funds? Where are the investors? What are they looking at? What’s holding them back? So, that’s a question I would like to pose,” she said.
“Even as I pose that question, I must recognize that India has received quite an appreciable number of foreign direct investments (FDIs). So, that’s not to say nothing comes to India. Yes, it is coming. But with that coming, I still would think there’s more opportunity lying ahead. With all the conversation being China plus one, shared values, democracies, English speaking, and the demographic dividend, with the skill sets of Indian youth being so good that they are manning the Global Capability Centers (GCCs) of the world located in India and GCCs of the world located outside, the question would be what’s holding it back?” she asked.
“I don’t think anything is holding the Indian economy back. The policies are working. Reforms are still happening, and they shall continue to happen. Greater liberalization of the economy will be there. We are accessing newer and newer friends and also speaking more about the Indian economy on more platforms that will probably be even more attractive for investors,” Sitharaman said.
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