Global Economy May Experience Soft Landing, Says Indian Finance Minister

Union Finance Minister Nirmala Sitharaman has indicated that a soft landing for the global economy is increasingly plausible, following years of considerable stress. Speaking at the Centre for Strategic and International Studies (CSIS) in Washington, D.C., she highlighted the role of coordinated international efforts and the proactive measures taken by multilateral financial institutions in fostering a more optimistic outlook.

Sitharaman pointed out that the recent discussions held by the International Monetary Fund (IMF) and the World Bank reflect a growing consensus about the potential for a soft landing. She noted that coordinated actions taken by central banks and governments have successfully kept inflation rates down for an extended period. “The largest sense which prevailed in the discussions is that there will be a soft landing,” she stated. This is particularly relevant for advanced economies, which are not expected to see negative growth in the near future.

The finance minister stressed that these coordinated actions are essential in managing the supply chain disruptions that have been a hallmark of the global economy over the last couple of years. Countries are reportedly approaching these challenges with greater preparedness, which bodes well for a more stable economic future. “The sense is we can only have better days than what we have seen in the last few years,” she said.

Despite this optimistic outlook, Sitharaman urged caution, emphasising that the recovery of economies is not yet robust. She noted that while the economies are not declining further, they are also not experiencing significant growth. “There is still a moderated world trade picture,” she remarked. The demand in advanced economies remains lukewarm, which dampens the prospects for a rapid recovery in global trade.

Countries heavily reliant on commodity exports or integrated into global supply chains are still grappling with sluggish demand. As a result, while the overall picture appears more positive than in previous years, Sitharaman indicated that the situation is unlikely to transform dramatically in the short term.

Another critical aspect she highlighted is the challenge of fiscal deficits that many countries now face. In the wake of COVID-19, nations have borrowed extensively to support recovery efforts, which has led to concerns regarding the sustainability of such borrowing. “Every country has borrowed much more than they ideally would do for the sake of recovery from COVID,” she explained, underscoring the importance of establishing a path to manage fiscal deficits effectively.

Sitharaman acknowledged that while India is growing robustly, benefiting from a strong domestic market, it faces external challenges, particularly in boosting exports. “We still have quite a few imports coming, but with the commensurate increase in exports not happening because our traditional export geographies are not really picking up, we have a challenge that is more external than internal,” she stated.

Responding to questions about India’s growth trajectory, Sitharaman raised important queries regarding the hesitance of global investors to commit funds, despite the favourable economic conditions. “What is holding the investors back? Why do global investors, going by the textbook, where economic activity is good, robust, and dynamic, not see the inflow of money?” she questioned.

Despite expressing concerns, she acknowledged that India has attracted a considerable amount of foreign direct investment (FDI). However, she believes that more opportunities exist for attracting further investment. The minister highlighted that discussions around “China plus one” strategies, shared democratic values, and India’s demographic dividend are all factors that make the country an attractive destination for investors.

Sitharaman remained confident in the policies that underpin the Indian economy, stating that reforms are ongoing and will continue to evolve. She reiterated that there will be greater liberalisation of the economy and an increased focus on enhancing India’s appeal to global investors. “We are accessing newer and newer friends and also speaking more about the Indian economy on more platforms that will probably be even more attractive for investors,” she concluded.

The outlook for the global economy, particularly from India’s perspective, is mixed but holds promise. While a soft landing may be on the horizon, sustained efforts will be essential to navigate the complexities of global trade and investment dynamics in the coming years.