Decline in India’s foreign exchange reserves largely due to valuation changes resulting from the appreciation of the US dollar (FM Sitharaman)

The GF made the remarks at the ongoing annual meeting of the World Bank and the IMF

The GF made the remarks at the ongoing annual meeting of the World Bank and the IMF

The decline in India’s foreign exchange reserves is largely due to valuation changes resulting from the appreciation of the US dollar, said Union Finance Minister Nirmala Sitharaman.

She made the remarks while addressing the International Monetary Finance Committee (IMFC) at the ongoing annual meeting of the World Bank and International Monetary Fund (IMF) here on Friday.

“India’s foreign exchange reserves, at $537.5 billion as of September 23, 2022, compare favorably to most peer economies. Two-thirds of the decline in reserves is due to valuation changes resulting from the appreciation of the US dollar and rising US bond yields,” Ms Sitharaman said.

Indeed, there was a $4.6 billion increase in foreign exchange reserves in the first quarter of 2022-23 on a balance of payments (BoP) basis. Other external indicators such as the net international investment position and short-term debt also point to lower vulnerability, she said.

In fact, India’s external debt-to-GDP ratio is the lowest among major emerging market economies (EMEs), she added.

India’s foreign exchange reserves fell by $4.854 billion to $532.664 billion as of September 30, according to the Reserve Bank of India (RBI).

The fall in reserves for the week ending September 30 was due to a decline in foreign exchange assets (FCA), a major component of overall reserves, the weekly statistical supplement released by the RBI said.

According to Ms. Sitharaman, the elevated pressures of imported inflation remain an upside risk to the future path of inflation, amplified by the continued appreciation of the US dollar.

Indeed, inflation has reigned at or above the upper tolerance limit of 6% since January 2022, she said.

Against this backdrop, Ms. Sitharaman said, the calibrated withdrawal of monetary easing continued to limit the widening of price pressures, anchoring inflation expectations and containing second-round effects. India is better positioned than many other advanced or emerging market economies, she said.

Read also: Explained | Why is there a decline in India’s foreign exchange reserves?

Ms Sitharaman said the flexible interest rate regime during the COVID-19 years has helped companies restructure their debt and reduce interest costs. Their debt ratios have since fallen to 0.5. The reduction in the corporate tax rate in the pre-COVID-19 phase has also helped businesses absorb the shock of the pandemic.

Similarly, the banking sector recorded six-year lows in non-performing assets (NPA) and slippage ratios, while the capital-to-risk-weighted assets ratio (CRAR) and provision coverage ratio ( PCR) increased, she said.

India is also experiencing strong credit growth of 15% in September 2022. The total flow of resources to the corporate sector so far is five times higher than last year’s mobilization, mainly through bank credit, CP and FDI, she said.

“India among the very few artists who stand out in a world of uncertainty”

In a world of uncertainty, India is one of the few countries to stand out, Ms Sitharaman said, a day after the International Monetary Fund described the country as a bright spot in a global economy facing recession. imminent.

“In a world of uncertainties, India is one of the few countries to stand out,” the minister said.

She said India’s National Statistical Organization (NSO) has now put GDP growth for the first quarter of the current financial year 2022-23 at 13.5% on an annual basis – the highest high among major economies.

Ms Sitharaman said this was achieved despite India having started the process of monetary normalization quite early: excess liquidity is being absorbed with the permanent deposit facility instituted in April 2022 and interest rate hikes to from May this year.

The central government, she noted, is on a consolidation path and has planned to reduce the GFD-to-GDP ratio to 6.4% from 6.7% in 2021-22 and 9.2% in 2020. -21.

In addition, public spending is now capital-oriented rather than revenue-oriented, strengthening the foundations for medium-term growth, she added.

According to Sitharaman, hitting 13.5% GDP growth in the first quarter lifted India past the pre-pandemic level of 3.8%. India has fully withdrawn from lockdowns since April 2022.

“So we see consumer spending increasing by 26% in the first quarter. This is made possible by the strengthening of consumer confidence and the revival of contact-intensive activities. But there is still room for improvement because the key trade, hotel and restaurant GVA has yet to break through the pre-pandemic level,” Ms Sitharaman said.

On the investment side, she said, growth in gross fixed capital formation (GFCF) soared to 20% in the first quarter, driven largely by governments and public sector enterprises (PSUs) in the transport sector, as well as by housing, construction, steel, the pharmaceutical industry and IT in the private sector.

This growth is also reflected in the immediate indicators – cement, steel, IIP capital goods, non-gold and non-oil imports and capacity utilization.

“Exports and imports are growing in double digits, but import growth is more robust than export growth, reflecting the recovery of the domestic economy and the divergent slowdown in the global economy,” Ms Sitharaman said.

“A ‘tense’ and ‘uncertain’ geopolitical environment could trigger winter supply issues for crude and natural gas”

Ms Sitharaman warned on Friday that the “tense” and “uncertain” geopolitical environment could trigger renewed winter supply concerns for key commodities such as crude and natural gas, but was cautious. optimism about India’s economic prospects based on solid macroeconomic fundamentals and structural reforms undertaken by the government.

The Russian-Ukrainian war has had a massive impact on the global energy system, disrupting supply and demand patterns and fracturing long-standing trading relationships.

It has driven up energy prices for many consumers and businesses around the world, hurting households, industries and entire economies in several countries.

Ms. Sitharaman encouraged the World Bank Group to explore innovative ways of mobilizing resources to unleash its capacity as a knowledge and solutions bank and leverage its global convening power to best support all client countries in pursuit of its dual purpose.

“The geopolitical environment remains tense and uncertain. This could trigger further winter supply concerns for key commodities such as crude oil and natural gas. Controlling inflation would be a major concern in developed economies,” she said.

“A return to reality from stock markets in developed countries could bring chills back to growth everywhere. However, growth prospects for the Indian economy remain optimistic thanks to strong macroeconomic fundamentals and structural reforms and initiatives undertaken by the government,” Ms. Sitharaman said.

The latest annual meeting of the IMF and the World Bank, she said, provides a timely opportunity to consult and reflect on how to deal with the headwinds caused by the multiple ongoing crises, including the effects persistence of the pandemic.

“Indeed, our deliberations can pave the way for a silver lining for the global economy amid rising inflationary pressures, currency depreciations, rising debts and shrinking fiscal space,” she noted. .

Ms Sitharaman said the endangerment of food and energy security, coupled with tight financial conditions and rising interest rates, posed huge challenges to her efforts to bring back long-term growth and reverse development setbacks caused by the pandemic.

“Our first collective priority must be to adopt a people-centred approach driven by innovation, to nurture new drivers of growth and to put the 2030 Agenda for Sustainable Development back on track,” the Minister said. finances.

The Purchasing Managers Index (PMI), which is a measure of the prevailing direction of economic trends in the manufacturing sector, hit an 8-month high in July and continues to remain in the expansion zone for September 2022 with marked gains in new business growth and exit, the minister said.

“Nevertheless, momentum could be challenged if merchandise exports, which fell to a nine-month low in September 2022, do not recover to previous high levels as slowing growth in advanced economies is expected weaken cross-border trade,” she added.

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