Amid heightened concerns over the impact of the Russian invasion of Ukraine on the Indian economy, Chief Economic Advisor V Anantha Nageswaran on Friday said prudent budget assumptions for FY23 will ensure that the macro-fundamentals will be able to hold-up in the near-term.
Nageswaran, who joined as the CEA days ahead of the budget presentation, said the assumptions on growth and revenue mop-up are prudent because they internalise the prevailing uncertainties. “… Barring prolonged uncertainties with respect to the oil price and geopolitical developments, the macro-fundamentals should be able to withstand the near-term shocks emanating from these developments,” Nageswaran said at an event.
The CEA did not specifically mention the war on Ukraine initiated by Russia over a fortnight ago, or its impact on oil prices which touched a 14-year-high of over USD 140 per barrel. It can be noted that India imports 85 per cent of its crude, and is exposed to the movements in global prices. At a time when some analysts have already downwardly reviewed their estimates on the country’s growth, Nageswaran said the impact of the on-going developments on India’s GDP growth, inflation, monetary policy and currency will have to be assessed “depending on the duration” of the current uncertainties and how they influence the energy prices.
“All these things are still evolving and it will be too premature to draw definitive conclusions. We need to remain prepared, vigilant in order to address any contingency that would arise from the global developments,” he said. “It must be a matter of comfort to all of us that to some extent the Government of India, knowing and being aware that it is operating in an environment of extreme uncertainty either due to the pandemic or due to other factors, has been conservative in the manner in which it has prepared the budgets over the last two years,” he added.
The academic-turned-policymaker said after two years of the pandemic-induced crisis, the country was looking to rev-up on the growth engine in the new fiscal, after being fortunate to have a limited impact of the third wave of the pandemic. However, tensions on the geopolitical front took over soon. In the years leading to the start of the pandemic, the country’s financial system had prepared itself for sustained growth by cleaning up of bank balance sheets and the corporates had also deleveraged by placing them for future investments.
However, the pandemic happened in between which led to a dent to domestic demand, and corporates held back on investments, he said. Meanwhile, Nageswaran also exhorted the flourishing fintech sector to self-regulate and not look at short-term gains which innovations can get. He said self-regulation which focuses on profiting from the collective good will hold the sector in a good way, while the short-term gains expose them to regulation by an external agency and the subsequent concerns over regulatory overreach.