‘Elevated energy prices, supply chain disruption in China a key challenge’

Elevated energy prices and supply chain disruption in China remain as two major concerns that dented consumer confidence and dampened risk sentiment in financial markets.

Addressing shareholders at the annual general meeting of Hindalco Industries, Kumar Mangalam Birla, Chairman, said, the tightness in energy markets and elevated energy-led inflationary impulses and volatility remains two major concerns around the current global crisis.

This apart, he said, the global supply chain disruptions that were triggered by the pandemic-induced lockdowns in China have continued because of the war in Ukraine.

Greater turbulence in currency markets is also seen with the dollar strengthening, while the euro and emerging economies are witnessing downward pressure on their currencies. 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, said Birla.

Bright spots

Nevertheless, there are several bright spots in India’s overall economic narrative, and these help the country to stay steady through the broader global economic turmoil. Thanks to the significant progress on vaccination and the upswing in public capex, activity indicators are now well ahead of the pre-Covid levels, and most estimates peg India’s likely economic growth during FY23 at over 7 per cent.

Though domestic inflation rate has been above the RBI’s tolerance range, the overshoot has not been as severe as in many other countries. Monetary and fiscal authorities have taken steps to dilute the inflationary pressures, and a normal monsoon this year should help soften these pressures further.

Even with a rising trade deficit, India has foreign exchange reserves equivalent to more than 9 months of imports, he said.

Easing burderns

According to Birla, the government’s policies such as the Production Linked Incentive schemes are helping. Many industries have witnessed fresh project investment announcements. Foreign direct investment flows have also remained strong. The burden of non-performing assets in the banking sector has eased. Start-ups and technology-based new age enterprises have acquired critical mass in India. Dynamism in India’s digital ecosystem, diversification of global supply chains away from China, and the greater emphasis of investors on sustainable finance also offer new opportunities for India.

Hindalco had announced a capital expenditure of about $8 billion over the next five years for Novelis and India. Novelis, a subsidiary of Hindalco, has identified a potential investment opportunities of $4.5 billion. In India, Hindalco has identified a potential investment of about $3 billion.

About 70 per cent of the company’s consolidated cash flows will be allocated towards high-growth downstream in segments such as electric vehicles, mobility, packaging, batteries and consumer durables.

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