Stating that a series of bad news is coming both on the domestic and international fronts, Finance Minister Pranab Mukherjee on Tuesday said the global community cannot afford to lose nerve and will have to deal collectively with the financial crisis in Europe.
“A series of bad news are coming. First, we had the IIP index (at 3.3 per cent in July) lowest in two years and second, lengthening shadow of the eurozone crisis all over the markets in the world is a matter of concern. But at the same time, we cannot lose our nerve,” the Finance Minister said on the sidelines of an ICRIER (Indian Council for Research on International Economic Relations) conference here.
Terming high commodity and food prices as a threat to growth and food security in energy-dependent emerging economies, Mr. Mukherjee called for collective global action to overcome the crisis. “We shall have to work collectively and see that we can overcome the impasse,” he said.
Mr. Mukherjee's comments came close on the heels of the country's industrial production falling to a 21-month low of 3.3 per cent in July and the likelihood of a sovereign debt default by Greece looming large again.
The Finance Minister said the growth in most advanced economies had declined in the second quarter of 2011 and emerging markets were witnessing a combination of moderation in growth and rising inflation. “There is widespread apprehension that even the tepid global economic recovery that we have seen so far, is stalling,” he said.
Mr. Mukherjee said globally the economies were facing the challenges of fiscal imbalances, regulation, development, and commodity markets.
“The recent commodity and food price rise and their volatility have further induced considerable threat to economic growth and food security in energy-dependent emerging economies,” he added.
He said the factors behind the recent price hikes were yet to be pin-pointed and even the G20 was undecided on the role of excessive liquidity on the international commodity prices. “Large and volatile capital flows to the emerging markets can be destabilising as they lead to high exchange rate volatility,” he said.
On the G20 development agenda, the Finance Minister called for recycling of global savings for infrastructure investments.