Chief Economic Adviser V. Anantha Nageswaran on Thursday, March 16, 2023 said global uncertainty has increased after recent developments in the United States and governments, businesses and individuals should maintain “safety margins ” in tax, business and savings accounts. planning.

He said the International Monetary Fund (IMF) global growth estimates given in January appeared outdated and countries will need to monitor the impact of developments in the United States over the past week on confidence, bank loans and the resulting chain effects.

Two US banks went bankrupt last week. Signature Bank, New York, which primarily lent to the crypto industry, was shut down by regulators on Sunday after a run on their deposits.

Additionally, the Silicon Valley Bank bankruptcy last week left many startups, tech companies, entrepreneurs, and venture capital funds jittery and jittery. SVB, the 16th largest bank in the United States, was shut down last Friday by the California Department of Financial Protection and Innovation which then appointed the FDIC as its receiver.

“Uncertainty to continue”

Speaking at the Crisil India Outlook seminar, Mr Nageswaran said uncertainty was on the rise and had increased a few notches over the past week and that is something countries have to live with, no only this year but for next year. and beyond.

“And the important thing to remember is that when you face uncertain times, the essential thing to do is to ensure that we have safety margins in our operations, whether it is for companies or for investors. The only direction you can think of is to allow for safety margins, whether in budget planning, business planning, or household balance sheet or savings account planning,” he said. .

He said that if developments over the past week create a need for the Federal Reserve to suspend interest rate hikes, we have to wait and see what happens to real interest rates in the United States. States and what it will do in the United States. dollar.

“And also, what implications will that have for emerging economies, which I think will be mostly positive in one sense, ie the pressure on their currencies will ease. On the other hand aside, if the Federal Reserve were to go ahead with its tightening program, having provided a liquidity safety net and put in place other provisions to ensure the integrity of depositors, we have to wait and see what kind of domino effect this could create on other banking institutions and the overall economy etc. This is quite a difficult situation that central banks around the world, especially advanced economies, are facing” , said Mr. Nageswaran.

He said that at this time it might be somewhat difficult to quantify the net effect of these developments on countries like India. “The overall positive effects would be the implications it would have for global demand, for oil prices and for US interest rates and the dollar. Those kinds of reactions will be mostly positive for us, even if there is a impact on export growth,” he said.

“You can see how quickly things change, and it’s difficult to provide long-term advice to anyone. So it’s important that we allow for uncertainty in our planning processes. And I think in to some extent we have tried to do that in our fiscal policy,” Nageswaran said.

He said India’s GDP growth is expected to be 7% for the current fiscal year. “If we manage to get through another week with temperatures in the current ranges, I think the wheat harvest due to early planting will also take place…and we may be able to get a good harvest. And that will have a positive chain future reactions, for inflation, for agricultural production, for monetary policy, etc.

Looking ahead to the next financial year, Nageswaran said the 6.5% growth projection carries more downside risk than upside risk.

“Of course, all of this is subject to assumptions about how the global situation, both politically and economically, will look. But overall, we are looking at all sectors, we are well above the levels pre-pandemics and private consumption as a share of GDP, if you look at three-quarters of the data for the last five fiscal years, it has increased,” he said.

He said one shouldn’t be too optimistic about 8-9% GDP growth in the current environment. “If you can achieve, sustain 6.5-7% or even 6.4-7% growth over the next 7-8 years into the next decade, we would have done very well.”

He said public sector investment had increased in recent years and had tripled, focusing on several sectors. Naturally, at some point, public sector investment spending will have to take a step back and the private sector will have to keep up the good work. Public sector capital spending has created the physical infrastructure for better manufacturing growth and export performance in the years to come, Nageswaran said.

The Finance Ministry’s chief economic adviser also said that nominal GDP growth for the next financial year has been assumed at 10.5%, and while India remains optimistic, it is aware of the formidable array of challenges facing developing and advanced economies face.

“We only need 2-3 years of steady nominal GDP growth of 10% for fiscal metrics to show significant improvements. So if it is clear that the quality of spending is improving and there is there’s still room for quantitative metrics, maybe it’s not necessary to wring your hands overly,” he said.