'Elevated interest rates to come in the way of growth,' cautions FM Sitharaman at B20 Summit

Finance Minister Nirmala Sitharaman on Friday stressed that sustaining economic recovery over the next few years will be the main challenge over the years to come and underlined five priorities for global economic growth, including taming inflation and increasing the focus on investments.

"Persistently high inflation will weaken demand," she said at the B20 Summit India 2023.

She, however, contended that using only interest rates to control inflation may have a downside and supply side issues also need to be managed. 

Further, noting that elevated interest rates for considerable period of time can come in the way of economic recovery, the minister however, said that most countries have an "obsession" of using interest rates as a tool to control inflation and not managing supply issues. "The task for central banks will now have to be to keep in mind growth- and growth-related priorities even as equally looking at controlling inflation," the minister said.

Her comments come at a time when retail inflation has hit a 15-month high of 7.44 per cent in July with food items such as tomatoes and other vegetables seeing an uptick in prices. The government has taken a number of measures to ensure adequate domestic supply of onions as prices of the kitchen staple have risen in recent months.

She listed out other priorities for sustaining economic recovery that include increasing investments to spur growth, climate change finance, raising investments in public health and education as well as diversification of supply chains.

The Finance Minister also underlined India's high growth rate and reforms. While China's slowing growth is a concern for all economies, it is important to play up India's strengths on its own.

"It's a matter which concerns all of us. I don't think we have sufficient evidence on what is happening in China," she said, when asked about the economic slowdown in the neighbouring country.

However, India has its own strengths such as young, skilled English people population, transparent system of governance and legal remedy in courts, she said.