Structural reforms keep economic recovery on course, says DEA secy

India’s economic recovery remains on course, supported by key structural reforms, despite exogenous shocks and challenges, Economic Affairs Secretary Ajay Seth said on Thursday.

Speaking virtually at the annual meeting of the Asian Development Bank (ADB), Seth said India’s response has emphasised supply-side reforms rather than a total reliance on demand management. “India is focusing on infrastructure led capital spending aimed at enhancing productivity and employment while ensuring fiscal prudence with ‘targeted’ interventions,” he added.

S&P Global Ratings in its latest global macro update said India remains an outlier, having emerged from the pandemic with stronger corporate balance sheets as well as structural tailwinds. “For the 16 emerging economies that we cover excluding China, 2022 GDP growth will hit 5.2 per cent this year. India is the star of this group with growth of 7.3 per cent this fiscal ending in March 2023,” it added.

The ADB annual meeting is taking place in the backdrop of tightening of monetary policies, slowdown of the global economy, supply-chain disruptions, unprecedented inflation and rise in commodities prices endangering food security and livelihoods and the developmental gains made so far, Seth said.

Seth said fiscal space has now considerably reduced and the surge in public debt has limited the space for additional borrowing and worsened debt vulnerabilities. “The need of the hour is increasing private sector operations to leverage the limited capital of the Bank (ADB) more efficiently, develop more affordable and innovative financing instruments to generate a multiplier development impact, including for employment generation in developing member countries (DMCs),” he added.

While acknowledging ADB’s elevated climate ambition, Seth said the multilateral lending institution will need to mobilise resources and have continued focus on poverty reduction while embedding climate change components into each project to enhance the climate resilience and sustainability of the DMCs. “Having said this, India emphasises the importance of the principles of equity and common but differentiated responsibilities and respective capabilities. The transfer of low-cost climate technologies from developed to developing countries has assumed critical significance,” he said.

Seth said the review of ADB’s Capital Adequacy Framework (CAF), including net income transfers to prudently optimise the balance sheet, is also key to augment lending operations for DMCs. “It is time ADB works on strengthening its equity capital, through another round of general capital increase, to be able to expand its lending outreach,” he added.