The authorities are working to ensure that the economy does not lose its momentum despite a slowing global economy, Finance Minister Nirmala Sitharaman said.
“This year and next year, we are the fastest-growing economy and keeping the momentum up is also very important for us,” Sitharaman said at a public interaction in Bengaluru on April 23. “Both the Reserve Bank and the finance ministry are working together to make sure that momentum is not lost.”
The challenges to the economy are more external as countries are going through a recession. As such, their demand might come down, pushing exports lower, the minister said.
We will have to find newer markets and survive in the export area. If companies are not, the domestic market is large and must be tapped into, especially by the micro, small and medium enterprises, she added.
The International Monetary Fund (IMF) earlier this month cut its gross domestic product growth forecast for India for the financial year 2023-24 by 20 basis points to 5.9 percent, significantly lower than the Reserve Bank of India's projection of 6.5 percent.
The Indian economy is estimated to have grown by 7 percent in 2022-23 as per the statistics ministry, though the IMF's estimate is 6.8 percent.
The IMF sees the world economy growing by 2.8 percent in 2023 and 3 percent in 2024, down 10 basis points each from the January forecasts. The agency has warned that global growth might remain around 3 percent over the next five years.
One basis point is one-hundredth of a percentage point.
This month, the Reserve Bank of India retained the policy repo rate at 6.5 percent, surprising markets. The central bank has insisted that it was a pause on rate hikes and not a policy pivot. Still, markets are factoring in policy rate cuts later this year.
The central bank had slashed policy rates to record lows and infused hefty liquidity into the banking system after the pandemic hit in 2020 while the government’s economic response was focused on measures targeted at the most vulnerable as well as credit support.
Meanwhile, many developed economies printed and distributed money, Sitharaman said at the event.
This formula resulted in double-digit inflation in their economies, something which wasn't seen there in 30-40 years, she added.
Initially, interest rates were 'low for long' and now inflation rates are 'high for long' in countries that printed money during the pandemic. Their economy is in a state of flux and in a recessionary phase which will have spillovers worldwide, Sitharaman said, according to the minister’s office.
India’s central bank has also had to tighten policy sharply over the last year as it sought to curb red-hot inflation.