The escalation in geopolitical tensions caused by the Russo-Ukraine War dealt a brutal blow to the global economy, including supply chain and logistics disruptions, increased inflation and periods of financial market turmoil. India Deputy Governor Michael Patra said this on Friday.
“Emerging market and developing economies (EMDEs) are bearing the brunt of these geopolitical spillovers, despite bystanders as I speak. Capital outflows and currency depreciation have tightened external funding positions, and with elevated debt levels, jeopardizing their hesitation and incomplete recovery,” Patra told an event by industry body PHD Chamber of Commerce. Addressing said.
Patra said increased volatility in financial markets and buoyancy in commodity prices – particularly energy, metals, grain futures and fertilisers – have increased risks to growth, inflation and financial stability.
“Like other emerging market economies (EMEs), India faces major risks, with immediate crude oil price hikes and tightening financial conditions. Spillovers due to lack of key intermediates due to large and sudden volatility in financial markets, portfolio capital outflows and supply chain disruptions are clouding the outlook, Patra said.
He said that while the external sector is well buffered with high levels of reserves and modest current account deficit, it is prudent to be cautious about the increasing intensity and scale of headwinds from geopolitical conflict that could be overwhelming for all of India. Including EME.
“The global economy is witnessing the most coordinated monetary policy tightening cycle ever,” Patra said, adding that the RBI is trying to stabilize the price situation when the economy is able to tolerate it.
Over a two-month period, the forecast for real GDP growth was revised upwards by 60 basis points to 7.2 per cent for 2022-23, while the CPI inflation forecast for the year was raised by 120 basis points to 5.7 per cent . These adjustments to the estimates can be considered as the first authentic assessment of the toll that geopolitical spillovers are expected to inflict on the Indian economy.
By the MPC’s June 2022 meeting, it was clear that risks to inflation prints were mounting, with three-quarters of the Consumer Price Index (CPI) under siege. Therefore, in that meeting, the inflation forecast for 2022-23 was raised by 100 basis points to 6.7 per cent.
“As I stated in my minutes at the June 2022 MPC meeting, the accountability mechanism adds credibility to the monetary policy framework, particularly in its commitment to re-align inflation with its target in the face of prolonged divergence and This is paramount. Massive public sensitivity to accountability works in the same direction as monetary policy to ensure price stability.
Although India’s goods exports have been above $30 billion in the past 15 months, the momentum slowed in May 2022, reflecting renewed supply chain disruptions in the wake of the war. Nevertheless, India posted strong growth in manufacturing export orders, beating the global decline. Patra said import growth is broad-based, taking the trade deficit to its highest monthly level in May 2022, but it is a sign that domestic economic activity is improving.
read all breaking news , today’s fresh news watch top videos And live TV Here.