Soft landing of global economy increasingly a possibility: Sitharaman

A soft-landing of the global economy, which has experienced tremendous stress over the past several years, is increasingly a possibility, Union Finance Minister Nirmala Sitharaman said Friday.

Observing that better days are ahead primarily because of the coordinated action between countries and multilateral financial institutions, the finance minister at the same time sounded a note of caution that economies are not really picking up that much yet.

The largest sense which prevailed in the two-day discussions, both of the (International Monetary) Fund and also of the World Bank, is that there will be a soft landing. The efforts by the Fund, the central banks and all institutions, governments have kept the inflation down for some meaningful period. Therefore soft landing is increasingly a possibility, Sitharaman told a Washington DC-based global think-tank.

Then that reasonable growth numbers will come from even the advanced economies. certainly not in the negative area. And then the coordinated action between countries to manage any supply chain shocks that have been the character of the global economy in the last, let us say, at least two years, are being faced by countries with a lot more preparedness, and therefore the sense is we can only have better days than what we have seen in the last few years, Sitharaman said during her appearance at the Centre for Strategic and International Studies (CSIS) think-tank.

But with that said, all of us had to sound a note of caution because economies are not really picking up that much yet. They are all right, you see them not going down further, but there is still a moderated world trade picture. Demand in the advanced economies are not really all that attractive. So global trade doesn't see possibilities of great recovery sooner, she said.

As a result, countries which are very dependent on commodity exports or being a part of the global value chain are not seeing great demand pick up. So, the picture that is emerging is positive, but it's not going to rapidly change the situation. Every country has borrowed much more than they ideally would do for the sake of recovery from COVID, whether that borrowing was quality borrowing in the sense borrowing for quality expenditure or not borrowing is on their balance sheet, she said.

As a result, looking at getting some kind of a control over fiscal deficit will be a challenge for most countries. If not a drastic control over it, gradually at least there should be measures to bring the fiscal deficit to some reasonable number. This is the kind of picture which has emerged and I quite agree with it because we (India) are growing fast on the back of one domestic market.

"We have a challenge also in that we still have quite a few imports coming. But with the commensurate increase in exports not happening because our traditional export geographies are not really picking up, we have a challenge which is more external than internal, the minister said.

Responding to a question, Sitharaman said India is trying to grow at the fastest possible rate. But, what I would counter pose a question, what is holding the investors back? Why do global investors, going by the textbook, where economic activity is good and robust and dynamic money flows there, is the normal textbook assumption. I want to ask where are the investable funds, where are the investors, why are they looking at, what are they looking at? What's holding them back? So that's a question I like to pose, she said.

Even as I pose that question, I must recognise that India has received quite an appreciable number of FDIs. So that's not to say nothing comes to India. Yes, it is coming. But with that coming, I still would think there's more opportunity lying, and with all the conversation being China plus one, shared values, democracies, English speaking, demographic dividend, with skill sets of Indian young being so good that they are manning the GCCs of the world located in India and GCCs of the world located outside. So the question would be what's holding it back? she asked.

I don't think anything is holding the Indian economy back. The policies are working. Reforms are still happening and it shall continue to happen. Greater liberalisation of the economy will be there. We are accessing newer and newer friends and also speaking more about Indian economy in more revenues, more platforms that will probably be even better attractive for investors, Sitharaman said.