Chief Economic Adviser (CEA) V Anantha Nageswaran said on Thursday that India’s economy is now on the verge of recovery, but the high price of crude oil is a concern.
The country’s banking sector is stable, capital is available and credit drawdown is about to take off, he said during a webinar hosted by the Bharat Chamber of Commerce.
“We are not unique to the phenomenon of uncertain growth and high inflation due to the pandemic. Developed countries are also facing the same problem,” he said.
The budget for 2022-23 was established keeping in mind that the price of crude oil will be around $75 per barrel. But due to the conflict between Russia and Ukraine, the price of Texas crude is now $96 a barrel. “Its impact on the Indian economy will depend on how long this high price lasts,” Nageswaran said.
According to him, inflation and purchasing power are global problems. This is due to rising shipping costs, high container costs and high oil prices. In India, inflation rates are currently hovering around 5.2%. “But, I think it should stay within the four to six percent in the next financial year that the RBI is aiming for,” he said.
The CEA said the market has started to correct in India. “Levels of activity in some industries have exceeded pre-pandemic levels. But the service sector has yet to recover.”
Regarding the private sector investment scenario, he said that it has not yet recovered due to the pandemic cloud which is still there. It will resume when consumption levels increase.
“But the capital expenditure plan in the budget is higher in 2022-23. This was done to fill the gap. In fact, the capital expenditures of the states have also increased,” Nageswaran said.
On a lower allocation to MNREGA in the budget, he said it was a demand-driven program. “This was done in hopes that the economy will recover and the demand for MNREGA funds will decrease. But if there is a demand for the program, funds will be provided for it.”
According to the CEA, there is room for maneuver in the budget. “I expect the recovery to start from the second half of the next fiscal year. Nominal GDP growth has been targeted at 11%. With inflation at 4%, real GDP growth will be 7%.
He said that for India to reach a $5 trillion economy, the share of agriculture, manufacturing and services should be in the ratio 20:30:50 in the country’s GDP.
(Edited by : Jomy Jos Pullokaran)