Viewpoint: Risks to economic growth

17 JAN,2023 | MEDC

A recently published World Economic Forum report highlighted a cost-of-living crisis, digital inequality, geopolitical competition for resources, natural disasters, and extreme weather conditions as being the key risk factors for India over the short to medium term. As 2023 begins, we face a series of risks that are both old and new in nature, and dealing adequately with them has to get top policy priority. Amongst the older risks, inflation remains entrenched, and it is the most detrimental in its socioeconomic impact. Capital outflows from emerging markets (including India) as well as unsustainable levels of debt remain other key areas of concern. Geopolitical confrontation, including the possibility of nuclear warfare triggered by the Ukrainian crisis, also looms large. The world looked forward to seeing the end of Covid just a few months ago, but recent developments in China may prove otherwise.

In the medium to short-term, climate change is the biggest risk the global economy faces, and it is also the one for which humankind is least prepared. Without significant and proactive policy intervention, the interplay between climate change impacts, biodiversity loss, food and nutrition security, and natural resource consumption could have adverse consequences regarding the promotion of inclusive socioeconomic growth. It will amplify the impact of both manmade and natural disasters, and limit further progress on managing environmental degradation. This is an area in which we cannot afford to fail.

The digital divide needs to be carefully addressed. At the bottom of the pyramid, technology is not always a socioeconomic priority – more important is sanitation, land, health, education, transportation, and employment. Once all these are met (with or without technology) the digital divide will automatically narrow. The real issue is not whether investing in technology can help development (it may, in some cases and for some people), but whether the overall societal benefits of doing so outweigh those of investing comparable amounts in (say) health and education. Ultimately, the cost will be the deciding factor in determining how soon (or whether at all) the digital divide will be bridged in India.

Beating the energy crisis is now a global imperative. Probably the best approach is a coordinated strategy by governments worldwide to reduce energy demand and increase supply, while simultaneously keeping internal energy markets open and protecting vulnerable sections of the population. This situation will promote the use of renewable energies and more efficient uses of electricity. To this end, both the administrative and regulatory landscapes need to be geared up. India, in particular, will benefit hugely from investing strategically in solar and wind technologies to power its energy requirements. That will also go a long way in advancing our transition to cleaner, renewable and more affordable energies.

The IMF has predicted a gloomy outlook for global growth, but addressing all the above-mentioned factors will help governments worldwide in effectively formulating their long-term development strategies. There is a long and winding road ahead for policymakers, and given the unpredictability of economic crisis, they had better be prepared for the unexpected. Every effort should be made to kindle animal spirits among entrepreneurs in the economy. It is when the public and private sectors work jointly together keeping national interests in mind, that the best results are achieved.


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