In his address at the State Bank of India (SBI) Banking & Economics Conclave, Mishra listed fragmented global alliances, dependence on imports, pressure on the country’s external accounts and artificial intelligence as four main risks the country faces. Mishra said that even as India has managed the recent crisis from the pandemic to Ukraine war and the West Asia crisis well it cannot be complacent must be conscious about the risks emerging from global developments.
“Alliances are fragmented, supply chains are being used as weapons. Capital can be switched on and off. Trade barriers both tariff and non tariff are rising again. We cannot count on friendly tailwinds. Second our dependence and imports is not just on energy alone, we have a significant merchandise trade deficit. We must make things at home and competitively,” he said.
Mishra who has been in the Prime Minister’s Office (PMO) for over 12 years starting in June 2014 and has been Principal Secretary since September 2019 said efforts are being made to improve manufacturing performance and skilling of young people.
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But pressure on the external account due to global developments has to be also watched.
“In a world where capital is fickle we need to focus on foreign direct investment. That calls for stability of tax policy contracts that states and logistics can be relied on and clearances that actually clear. Fourth, artificial intelligence is developing at a fast pace. We do not yet know its full shape. We need to prepare for it,” he said.Mishra said the financial system should now move from accomodating growth to enabling growth.
“India will have to mobilise very large volumes of capital over the next two decades, for infrastructure, manufacturing energy transition, enterprise and innovation. Assets with long gestation period require capital of long tenure. Innovation requires risk capital, highly growth enterprises require equity, infrastructure requires patient capital. And cities will require view financial structures,” Mishra said.
He said that the depth of the corporate bond market is not a separate issue from the health of bank lending. They are two sides of the same financing requirement. “Banks will ofcourse remains central. But a month larger and more sophisticated economy cannot be financed by banks alone. We will be strong banks alongside deeper bond and equity markets, larger institutional investors, infrastructure funds and a more efficient channel to ensure domestic savings are converted into productive investments,” he said.
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Mishra said the lessons derived from the past must not be forgotten.
“Credit must be appraised against the economics of the project rather than the enthusiasm of the moment. That is the surest protection against the repetition of the cycle of excessive lending, stressed assets and subsequent clean up,” he said.