New Delhi, Mar 25 (PTI) A strong domestic economy would help reduce the negative external impact of the Russia-Ukraine conflict, high input costs and disruptions in supply chain, eminent economist Shashanka Bhide said on Friday.
Bhide further said that growth in stable employment and household income would be the basis for the recovery in consumption spending.
“The (Russia-Ukraine) conflict has global implications just as the COVID-19 pandemic has done.
“Global economy is affected by high input costs and disruptions in supply chains,” he told PTI in an interview.
According to Bhide, these changed circumstances would require the businesses and the macro policies to take steps to minimise the adverse impact.
“Strong domestic economy would help reduce the negative external impact,” he said.
The eminent economist noted that the economy has shown remarkable resilience in the face of the shocks of three successive waves of the Covid pandemic.
He said the supply side disruptions occurred because of restrictions on economic activity to limit the spread of infections and the inability of consumers and producers to carry on normal economic activities.
Stating that there were, therefore, both supply and demand disruptions, he said, “It is the correction in the demand side that is needed now to strengthen the recovery on the supply side.” While noting that investment demand has shown quicker response to the decline caused by the COVID-19-related constraints, Bhide said recovery in private consumption demand has been slower.
“Growth in stable employment and household income would be the basis for the recovery in consumption spending,” he opined.
According to Bhide, commodity prices that had risen sharply due to the pandemic-affected supply chains have again been a cause of concern in the face of the Russia-Ukraine conflict.
As the energy prices have significant impact on input costs directly and on balance of payments and fiscal balance indirectly, he said, “The challenge to macroeconomic policy is to manage these adverse conditions to sustain stable economic growth with price stability.” Asia’s third-largest economy is projected to grow 8.9 per cent in the fiscal year ending March 31, slower than the previously anticipated 9.2 per cent, according to the recent government data Replying to a question on high inflation, Bhide said external market conditions are clearly not favourable in terms of the price conditions.
He emphasised that even on the domestic front, flexibility on the supply-side systems to absorb higher input costs would be critical in minimising the external price shocks.
“The improvement in India’s ability in the recent years to manage the external shocks would be an advantage in the present situation,” he said.
While the macroeconomic policies in the major economies are responding to these concerns, he said success of these policies in cooling down the sharp spurts in demand and enhancing supplies would be key to reducing inflationary pressures globally.
“Moderating inflation is necessary even to sustain consumption and investment demand,” Bhide said, adding that this has been the concern particularly through the last two years.
Retail inflation hit an eight-month high of 6.07 per cent in February, remaining above the RBI’s comfort level for the second month in a row, while wholesale price-based inflation soared to 13.11 per cent on account of hardening of crude oil and non-food item price.
The Reserve Bank of India (RBI) on February 10 had lowered the inflation outlook to 4.5 per cent for the next fiscal, from 5.3 per cent in the current year.
Russia started its military offensive against Ukraine on February 24. Western nations, including the US, have imposed major economic and other sanctions on Russia following the offensive. PTI BKS MR