Large economies staring at long recession, emerging economies need to drive global growth: FM

Finance Minister Nirmala Sitharaman today said large economies are faced with long drawn recession with the Central Banks in those countries bereft of any other tool than monetary policy action. Sitharaman also mentioned that the emerging market economies will need to see whether they can become the engines of global growth.

Addressing the Indian Diaspora during her ongoing official visit to South Korea, Sitharaman said, “Economies which are large and have the wherewithal to face challenges are looking at long drawn recession. Central banks in those countries do not have any other tool to handle it and are only going on raising interest.”

FM said that with this continuous rise in the interest rates, a prolonged recession is likely. “Now, interest rates are going to go on and recession seems to be there and appears to be continuing for a long period. Earlier it was interest rates. Now it is inflation. Both are dragging for a long time. And institutions like the Central banks do not seem to have multiple tools to handle it,” said Sitharaman.

“They have singularly one tool which is interest rate management. And if the countries are to follow in a synchronised manner, for every increase by the Fed someone in Europe or somewhere else also follows, the string of activity are going to have the same intended or unintended consequences,” Sitharaman added.

She also urged the emerging market economies to have strategies in place to become engines of growth in times like these. In such a situation globally, how can emerging economies, which are showing good signs of growth whether it is Indonesia or India, sustain that growth so that the emerging markets can literally be the engines of growth and help the global crisis be solved, she said.

She mentioned the steps that India has taken in the digitalisation of the economy and the fruits it is bearing. She mentioned India’s adoption of digitisation in manufacturing systems, payments systems, digital identity, and faceless technology in income tax. “We are moving in that trajectory while also proving that it can be scaled up. There is just an all-pervading impact of digital technology, but not all countries have moved ahead in scaling it up in the way we have done it. Even the industries understand that for better access to raw materials and cost effective ways of production one has to benefit from the Web 3. So many industries have to reset themselves,” she added.