Noted banker and HDFC Chairman Deepak Parekh on Tuesday said the biggest risks are not of economic disruptions but of despotic powers, the lack of cooperation and the growing weaponisation of trade.
He also described the current avalanche of crises the world is facing as a ‘global polycrisis’.
In his address to the Indian Chamber of Commerce’s Kolkata chapter, Parekh said it is for each country to decide what their priorities are and where their comparative advantages lie when it comes to balancing the goals of globalisation and self-reliance.
“But what is more concerning is that bilateral relationships have become so fractured that there is so much of mistrust and polarisation amongst countries today.
“Therefore, I would say the biggest risks the world faces today aren’t those of economic disruptions but the risks of despotic powers, lack of cooperation and the growing weaponisation of trade. Much of this has already played out with energy supplies, natural resources, semi-conductors amongst others,” Parekh said.
While noting that the world is in urgent need of global cooperation more than ever before, he said that some of the areas that need global collaboration are in devising a common regulatory framework for crypto assets, improving efficiencies for cross-border payments, protection from cyber risks and jointly addressing the climate-related financial risks.
“Across the globe we today see an economic crisis, political crisis, social crisis, debt crisis, currency crisis, trade crisis, cost-of-living crisis and a climate change crisis, all playing out simultaneously. In fact, I would say we are in the midst of a ‘global polycrisis’,” he said.
He also noted that it is not just a situation of multiple and interconnected crises, but a situation where the whole is more dangerous than the sum of the parts.
Global growth which was 6.1 per cent last year is estimated to fall to 3.2 per cent this year and is projected to drop further to 2.7 per cent in 2023.
Global inflation is estimated at 8.8 per cent for 2022 and is projected to settle down at 4.1 per cent only by 2024. These are inflation highs not seen in the last 40 years. Thus, monetary policy actions are likely to continue to follow the ‘higher for longer’ mantra. This means prolonged high inflation along with aggressive interest rate hikes by most central banks, he said.
The bigger challenge for the rest of the world, excluding US and EU, is the steeply rising dollar strength.
The dollar index that measures the greenback against a basket of currencies has risen 16 per cent so far, causing severe imbalances for the rest of the world while the yen has depreciated 23 per cent, the pound 16 per cent, the yuan 15 per cent and the rupee has lost 10.3 per cent.
Calling up on the Reserve Bank of India (RBI) to let the rupee to find its own true value, Parekh said the IMF is right in saying that countries need to use their forex reserves more prudently to guard against possible future shocks and intervene only to ensure macro-economic stability.
This means allowing exchange rates to adjust, while using monetary and fiscal tools to align the inflation rate nearer the target rate. To my mind, the RBI has been extremely prudent in its exchange rate management as it hasn’t allowed a free-fall of the rupee. “The present currency depreciation is not a reflection of a change in the fundamentals of our economy,” he said