“Geopolitical climate poses short-term challenges for Indian economy”: Chief Economic Advisor

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Chief Economic Adviser (CEA) V Anantha Nageswaran said that global threats and headwinds related to geopolitical conditions are the short-term challenges for the Indian economy and could persist for 6-12 months.

In his keynote address at the FE Modern BFSI Summit, Nageswaran said that the global situation is leading to high inflation in most countries, high world commodity prices that are heavily dependent on imports (crude oil, edible oil, fertilizer, metals, etc.), a tightening of monetary policies in most countries and the risk of financial and macroeconomic instability (global spillovers and local risks).

This also entails a likely stock market correction, a supply chain bottleneck (delays and shortage of key inputs), a potential global recession with an impact on India’s export growth and transition towards a green economy, he said.

India has been hit by geopolitical conflict just as it emerged from a two-year Covid pandemic.

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Nageswaran said that despite IMF and World Bank growth reviews, India is still the fastest growing major economy. India is becoming inflation intolerant and it is important to stabilize inflation expectations going forward, he added.

On the state of the banking sector, the CEA 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, he said.

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