Corporate India needs to be watchful of the excess volatility in the financial markets and rising cost pressure as the economy faces one crisis after another.
Addressing shareholders at UltraTech Cement's 22nd annual general meeting here on Wednesday, Kumar Mangalam Birla, Chairman, Aditya Birla Group, said the Covid pandemic made 2020 an unprecedented year, the supply chain whiplash last year made it unprecedented. And now, the Russia-Ukraine war and global stagflation are making this year unprecedented. Disruption now feels like business as usual, he said.
While businesses need to remain on guard regarding financial market volatility and cost pressures this year, one can expect the medium-term growth recovery to remain on track, Birla said.
World economic growth
Global economies recovered from the pandemic shock in 2022 on the back of supportive fiscal and monetary policies and mass vaccination programmes. However, in recent months, the war in Ukraine and looming fears of a global recession have posed macro headwinds. The International Monetary Fund now expects the world economy to grow at 3.2 per cent this year, slowing further to 2.9 per cent next year, he added.
The current global crisis has caused tightness in energy markets and concerns around the energy security in some regions.
Elevated energy prices have triggered central banks to normalise monetary policy faster than anticipated, denting consumer confidence and dampening risk sentiment in the financial markets, Birla said.
As the stance of monetary policy shifts, there is greater turbulence in currency markets.
The Indian economy has not remained unscathed by these global developments. India has also witnessed upward pressures on inflation, rate hikes by the RBI and a widening trade deficit. Nevertheless, he said there are also bright spots in India’s overall economic narrative.
While India’s inflation rate has been above the RBI’s tolerance range for some time, the overshoot has not been as severe as in many other countries. A normal monsoon this year will soften inflation pressure, he said and indicated that UltraTech will become the world's third largest cement company with 159 mtpa capacity by FY25.
Even with a rising trade deficit, India’s external indicators remain supported by foreign exchange reserves equivalent to more than 9 months of imports despite some decline in recent months, said Birla.
Looking beyond the current challenges, a robust pipeline of infrastructure projects and the production-linked incentive are helping many industries to look at fresh investments. Foreign direct investment flows have remained strong. The burden of non-performing assets in the banking sector has eased, said Birla.