Outlining the challenges and opportunities before India as it strives to become a developed nation by 2047, Virmani said global inflation and oil prices are expected to cool over the next one year and that will have a positive impact on the Indian economy with an expected enhanced capex from the private sector.
“The big export boom, whether in Asia, Malaysia, Thailand or South Korea since the 1980s has all been led by MNCs. Since supply chains of MNCs now constitute something like 50% of the world exports, FTAs with developed countries will greatly facilitate the entry of India into their MNC supply chains, push labour intensive manufacturing and increase exports,” he said.
According to Virmani, it is very important to diversify supply chains out of China because of the recent supply shocks and the direct threat that India faces from its neighbour. “The main reason is that we are already too enmeshed in the Chinese supply chain,” he said.
“Further, due to the geo economic coercion and a direct security threat, it’s too dangerous for us in the future and hence we want to reduce dependence on at least critical inputs from China,” Virmani said, hence the decision not to join the Regional Comprehensive Economic Partnership and instead go for FTAs with developed nations.
Speaking on the revival of the private sector investment to match the government’s enhanced capex in 2023-24, Virmani said the multiple waves of the pandemic, and each happening at different times in different parts of the world, has messed up the whole demand supply global equation much more than anticipated, leaving businesses confused on the future of their investments.
“So, assuming the current condition persists and there are no fresh major shocks, I expect global inflation will come down and this will soften the interest rates. So, everything will reverse, and things should look better, but the exact timing is very hard to predict,” he said.
Commenting on the impact of high oil prices on India, Virmani said the Ukraine war and geopolitical movements have pushed up oil prices which has negatively impacted our GDP growth. “However, now Russia’s supply chain is shifting from Europe to China and Asia. So, in that sense, prices should moderate over time,” he said.
However, Virmani cautioned that the change in objectives, goals and methodology of OPEC nations has left it unclear as to how it will benefit India. “It is unclear that even when global output falls, oil prices will fall as much as they used to. And that is very critical for us. So, this is a new risk to India,” he said.
In his candid conversation, Virmani outlined several opportunities that can drive India’s economic growth over the next 25 years.