cea: War, US Fed policy major red flags: CEA V Anantha Nageswaran


The Chief Economic Advisor V Anantha Nageswaran Tuesday identified the Russia-Ukraine war and aggressive stance of the US Federal Reserve on tightening monetary policy as major headwinds, but said the robust state of balance sheet within the private sector would enable the Indian economy to weather this twin storm.

“These are the two red flags…,” he said, addressing the National Leadership Conclave organized by the All India Management Association.

But the CEA was confident that things will settle in the second half of this year. “(In) second half of 2022, blue skies will appear and we will witness the sustainable growth that we witnessed during 2001-2003,” Nageswaran said. He admitted that the war would have a negative impact on energy and fertiliser prices, but there could be a two-way impact on food prices as farmers could take advantage of wheat supply disruption from warring countries.

Oil prices & Growth projection

On the revised growth projections for FY23 in the economic survey, Nageswaran said: “It is too premature to say that those projections are liable for major revision. If oil prices stay over $100 per barrel for quite a long time, then only these projections need revision,” he said. The Economic Survey sees 8-8.5% growth in FY23.

The finance ministry’s monthly economic report last week said India may find it difficult to grow faster than 8% in FY23 if crude prices persisted at the current level for too long while cautioning against the upside risk to inflation in view of the war. The RBI, last week, slashed economic growth projection to 7.2% from 7.8% estimated earlier amid volatile crude oil prices and supply chain disruptions caused by the war. It also raised the inflation forecast for the year from 4.5% to 5.7%.

CEA, however, said if oil price remained above $110 for a quarter or two, then there may be a need for burden sharing. He said that the government’s approach is to provide targeted relief to the poor instead of omnibus tax reduction.

On the possibility of an excise cut on oil, he said that the impact could be 0.2%-0.4% of the GDP depending on how soon or how much excise cut becomes necessary. He said that the budgeted 6.4% fiscal deficit looked alright as the revenues were good now.

Private sector investment

The investment from the private sector has been muted for many years despite several measures, including corporate tax cut, taken by the government to reinvigorate it.

“Bank credit is beginning to pick up especially in the MSME sector,” he said, adding that probably by the end of the second quarter or in the second half of the year, the private sector will pick up the capital expenditure baton and run with it.

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