Challenges from higher oil, commodity prices manageable: CEA

‘Conservative Budget estimates give us a better footing’

Chief Economic Advisor Anantha Nageswaran on Thursday said scenarios including high oil and commodity prices as a fallout of Ukraine crisis could be challenging, but do not create a big headwind for India’s growth and it was unnecessary to imagine dark scenarios.

The conservative set of assumptions made in the Union Budget give us a better footing to handle many different scenarios of oil price, he said speaking at a panel discussion titled ‘India at 75 - The Road Ahead’, outlook for markets and economy 2022, organised by United Way of Chennai, a not-for-profit organisation.

Mr. Nageswaran pointed out that people have been saying they have downgraded India’s growth assessment for FY22-23. “But they are starting from a high level of 9-9.5% and bringing it down to 8%. However, the Union Budget itself has made an assumption of barely 6.5-7% for real GDP growth and inflation at 4-5%,” he added.

The Chief Economic Advisor said the revenue growth projection for FY22-23 was also built on a depressed base of FY21-22.

He said these assumptions give a better footing to handle the different scenarios of oil price, except for an exceedingly higher price.

Mr. Nageswaran said in his personal view, the quite-likely scenario would be where oil would cost $110-120 a barrel or more in FY22-23 and the situation of oil in excess of $110 would be more manageable for India than others.

“This is partly because the country has already paid its growth dues in the last decade. The financial sector and non-financial corporate sector had a set of balance sheet problems and even before the pandemic struck, these issues had largely been addressed,” he said.

According to him, once the cloud of the pandemic is lifted from people’s minds, consumption and demand would slowly pick up and the corporate sector would begin to invest, leading to employment generation.

Until that happens, the government emphasis on the capital expenditure will provide the support for the economy before the private sector is confident about demand visibility and starts investing, he added.

Speaking on the occasion, N. Chandrasekaran, Chairman, Tata Sons and Air India said he was extremely bullish and super positive about India’s future. Air India would continue to be a national airline and the Tata Group has been investing in many new areas like renewable energy, electric vehicle battery, semiconductor manufacturing etc, he added.