India's domestic demand, resilient financial system provide some insulation amid global crisis: Eco Review
New Delhi, April 29
While the West Asia conflict constitutes a significant supply shock with rising risks to inflation, trade, and financial flows, India's domestic demand, policy buffers, resilient financial system, and sustained public investment provide some insulation, the Finance Ministry's Monthly Economic Review for the month of April said on Wednesday.
Whether these factors would prove adequate in the event of prolonged uncertainty about energy and fertiliser supplies is an important question.
"On top of this, the El Nino Southern Oscillation (ENSO) is expected to keep India's Southwest monsoon below normal. Most rainfall districts are expected to receive below-normal rainfall this season. Therefore, risks are tilted to the upside for inflation, fiscal and external deficits, and to the downside for economic growth. However, while striving to sustain economic growth, policy is expected to safeguard medium-term fiscal and external stability," the Review noted.
It has been 60 days since the conflict in West Asia began on February 28, and "we do not appear to be closer to a resolution", it said.
According to the Economic Review, the positions of the warring parties remain wide apart, as the negotiations are marked or marred by a lack of trust regarding the underlying motive for ceasing hostilities.
Some countries have begun to allow prices to be passed on to end-users -- households and businesses. Some are yet to do so. But it is inevitable, it stressed.
"During a period of supply disruption, demand has to moderate; failing that, countries will have to pay a much higher price for energy supplies. India's crude oil basket averaged $113 per barrel in March, and it is just under $115 per barrel for April until the 24th," the Review said.
In the second week of April, the International Monetary Fund (IMF) released its World Economic Outlook. With an assumption of $82 per barrel for the year, the Fund's overall macroeconomic forecasts appear more sanguine than they would otherwise be.
"In other words, the risks to the Fund's growth forecasts are heavily tilted to the downside, while inflation risks are tilted to the upside," the Review noted.
It further stated India should prioritise energy security and resilience.
"Of course, in doing so, it cannot substitute one import dependency for another. Vulnerability to sudden stoppages should not worsen. Getting public transportation right holistically will enhance both energy security and the liveability of Indian cities. This requires consensus-building with states, and the current crisis demands that all stakeholders come together," the review maintained.
Further, the domestic decriminalisation and deregulation agenda need not be hostage to external developments.
"In particular, regulatory simplification that lowers the cost of imports and exports will be particularly valuable in these times. This is the ideal time to unleash long-overdue policies (or eliminate them in some cases) that remove distorted crop choices and improve agricultural productivity," the Economic Review said.
Moreover, promoting AI-insulated (resilient to AI-driven labour displacement) durable trade skills among the Indian youth will not only boost domestic manufacturing and services but can also be a source of export earnings. India's employment challenge includes but transcends the impact of AI on Information Technology jobs alone, it emphasised.
— IANS
Reader Comments
Interesting that the review highlights regulatory simplification and agricultural reform. These are exactly the structural changes India needs. The emphasis on AI-insulated skills for youth is also forward-looking. But I worry about the monsoon forecast - if agriculture takes a hit, rural demand could collapse.
"Policy is expected to safeguard medium-term fiscal and external stability" - this sounds reassuring but implementation is key. We've heard similar promises before. The fact that the review itself says risks are tilted to downside for growth and upside for inflation tells me we need to be realistic. Still, better to have a plan than not. 🇮🇳
The IMF's assumption of $82 per barrel oil seems overly optimistic given current trends. India needs to aggressively pursue renewable energy and domestic fuel alternatives. Also, the point about public transportation is spot on - our cities are choking, and better transit would reduce oil imports too. Win-win if done right.
One critical point: the review mentions "regulatory simplification that lowers cost of imports and exports" but doesn't address the complex GST structure and high corporate taxes that still hamper business. Also, promoting AI-insulated skills is great, but where are the concrete schemes? Let's see action, not just words.
The economic review seems to be walking a tightrope - balancing growth, inflation, and fiscal discipline. El Nino adding monsoon uncertainty makes it even trickier. But India's diverse economy and large domestic market does provide more resilience than many other emerging markets. Let's hope the policy buffers hold up.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.