FM Sitharaman advise to Central Banks: Keep growth priority in mind
Hours before Federal Reserve Chief Jerome Powell indicated further rate hike, Finance Minister Nirmala Sitharaman on Friday called for central banks keeping in mind growth priorities, while using interest rate as the only tool to tame inflation. She also hoped that first quarter growth number would be good while emphasising that the focus should be on India’s strength rather than China’s weakness.
“Tendency to use interest rates as the only solution for dealing with inflation has its own downside., she said while addressing a plenary session of B20 summit, organised by CII here as part of India’s G20 presidency. Further, she said obsession with using interest rate as the only tool to deal with inflation and not manage the supply side factors will not give a complete solution for inflation. She said it can offer a temporary solution, but before long, supply-side issues arise.
“The task, therefore, for the central banks is to keep in mind growth and growth-related priorities. Even as equally looking at controlling inflation. The fiscal deficit needs also to be restrained. Otherwise, inflation is not going to be wholesomely defeated or brought under control,” she said while listing taming inflation as five-point agenda for sustaining global growth. Other four priorities include emphasis on investment for spurring growth, global focus on investment in public health & education, climate change finance and diversification of supply chains.
Fastest growing economy
Noting that India is the fastest-growing major economy, she said that in another few days, the GDP numbers for the first quarter of 2023-24 will be released. “As things stand, nobody has a clue. But everybody feels that yes, the first quarter did go on well, so the numbers should be good,” Sitharaman said.
The National Statistical Office (NSO) is scheduled to release the GDP data for April-June quarter on August 31.
Further, she highlighted that India has showcased an accelerated pace of economic reforms in the last nine years. The government in FY2023-24 Budget increased the capital outlay by 33.3 per cent, raising the share of capital expenditure in total expenditure from 12.3 per cent in FY18 to 22.4 per cent in FY24 (BE). Measures implemented by the Union Government have incentivised States to increase their capital expenditure spending. States’ capital expenditure has increased by 74.3 per cent y-o-y in Q1 of FY24 to complement the Centre’s capita expenditure increase of 59.1 per cent in the same quarter. Enhanced provision for capital expenditure by the Govt is now crowding in private investment, she added.
“I am happy to say this enhanced provision for capital expenditure by the government is now crowding in private investment. So the green shoots of a private capital expenditure upcycle can be palpably felt by most of the observers,” the minister said.
China vs India
Talking about China, she said “While I keep a watch on the developments happening in China, I am more focused on India‘s moment, on the opportunities that exist in India, the skills, and the work culture where the young are raring to go forward and prove themselves. So, we should speak for India‘s strengths and not for the suffering of somebody else,” she said.
The Chinese government expects the economy to grow by 5 per cent this year but economists have warned that the target is looking unachievable because of a looming property market bust and local government debt crisis. There is also an apprehension that slowdown in China will have an impact on overall global economy.