‘Inflation, geopolitics key global economic hurdles’: Nirmala Sitharaman
Sitharaman said wars are causing supply chain disruptions and stoking inflation globally, which is a “big challenge” for all countries
NEW DELHI: The world’s immediate priority for this decade should be the restoration of normalcy to stem rising inflation, Union finance minister Nirmala Sitharaman said on Wednesday, listing equitable solutions for climate change, prudent debt management, industry-led skilling of youth, and coexistence of big and small firms as other decadal challenges for the global community.
Detailing her priorities for a healthy global economy, Sitharaman urged governments, policymakers, strategic leaders, citizen forums and the industry to act together in bringing normalcy globally, otherwise the decade would be “frittered away”. Part of this, she suggested, would require the settlement of geopolitical disputes.
“No way can there be enough justifiable reason for skirmishes or war,” she said. Both the Russia-Ukraine war and Israel’s bombardment of Gaza have taken their toll on global trade and supply chains.
Addressing the opening plenary of the Global Economic Policy Forum, the minister said wars are causing supply chain disruptions and stoking inflation globally, which is a “big challenge” for all countries as the problem “doesn’t respect borders” and no nation is “safer” from its contagion. The two-day event is jointly organised by the Department of Economic Affairs (DEA) and the Confederation of Indian Industry (CII). DEA is an arm of Union finance ministry.
The minister referred to the trend of globalisation seen in the 1990s and 2000s and said that as a result of this, the world tasted success in widening supply chains based on the principles of efficiency and economy of scale. That’s no longer the case.
“Today, would there be anyone in the audience who would disagree if I say, just economics doesn’t prevail; strategy prevails, politics prevails,” she added, pointing to the disruption of global supplies because of geopolitical reasons.
Sitharaman said frictionless supply chains are not based on economics alone but also depend on geopolitical dynamics. She, therefore, stressed the need to not only restore supply chains but also “reset” and “realign” them by factoring in “geopolitical or strategic” risks. “So, I think, supply chain lessons that we’ve learned in the last decade should tell us that we have to now realign ourselves (and not just on economic principles),” she added.
Speaking on global efforts to mitigate climate issues, she said the big challenge is finding the resources.
“A lot of discussions happened, a lot of promises are made on the table, but nothing is realised,” the minister said in a tacit reference to the reluctance of the developed world to accept the “polluters pay” principle. Developed countries have also shorn away from meeting their financial commitments, pushing through in last month’s climate conference an agreement on $300 billion a year in funding to help developing countries adapt to and mitigate the impact of the climate crisis, well short of the estimated requirement of $1.3 trillion a year.
“Climate change is something for all of us to commit ourselves to, like the intensity with which we are committed to removal of poverty,” she said, adding that extreme weather events are taking away hard-earned resources of the poor. So, I think, climate challenges have to be looked at from various different perspectives rather than just emissions.
“Yes, emission is an indicator. It’s a diagnostic tool. But after that how do we solve the problem? Who puts the money in? Do we wait for a collective resource to reach us or is it that some of us will start doing our little bit for our own countries?” she said.
Sitharaman also focused on agriculture and food security, and said there is the need for more innovation and application of technology to provide better livelihood to farmers and farming communities.
Water-thirsty crops should be replaced by others, but the protein requirement of the world will also have to be addressed, she said. “So, agriculture shouldn’t be looked at in the same fashion that we’ve looked at all these years,” she added.
Underscoring the need for a balance between big and small enterprises, she said the industry will have to look at ways in which it can adapt to the newer challenges that are emerging. “Scale cannot be the only criterion; large and larger corporations are welcome because they give you their advantage of scale,” she said, adding that small and medium enterprises (SMEs) have their own strengths.
“We need to have a blend of large and small for horizontal scale,” she said. “Industry should work together with small and medium units to see how they can be supportive of each other.”
Speaking about debt and financial security as the final priority for the decade, the finance minister said: “Intergenerational debt is mounting on countries. Responsible economies -- and I speak for the industry and for government -- can’t be run with borrowings so large,” she said, referring to deferring debt burden on the next generation.
Around the world, debt levels have soared after the Covid-19 pandemic, with governments taking on debt to fuel their stimulus schemes in the wake of the pandemic.
“So, I would think, it is absolutely important for governments and for industry to work together to say how best debt can be managed at the national and, I hate using this word, but I would say, at the sub-national level. I mean the federal and the provincial levels,” she said.
In India, the debt on the books of states -- which is significant -- has become not just an economic but also a political talking point, especially given the rash of welfare schemes governments of all hues have launched with an eye on votes.
India itself was prudent with debt during Covid, with its economic relief package consciously avoiding the cheque-in-the-mail route that many developed countries adopted. Sitharaman said that while borrowing during the Covid period, she was “super conscious” that the debt levels must not be unsustainable and become a burden for the coming generation. According to the July Union Budget, India hopes to end 2024-25 with a fiscal deficit of 4.9%, in line with its target.
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