Mumbai: Reserve Bank of India (RBI) governor Urjit Patel on Thursday highlighted political risk as an emerging challenge faced by BRICS countries in attracting investments.
In his first public speech after being named RBI governor, Patel said that black swan events like Brexit, the US presidential election and political realignment in Europe could affect policies of Brazil, Russia, India, China and South Africa, which constitute the BRICS. Patel also highlighted other challenges, including global headwinds and managing spillovers on account of policies adopted by central banks. He was speaking at the BRICS seminar on investment flows in Goa.
“The main challenge in energizing economy is global headwinds. Management of spillover in view of uncertainty injected into business climate and prospects for return by bouts of financial markets turbulence on account of policy uncertainty from systemic central banks of the world,” said Patel. Finance minister Arun Jaitley downplayed the fears of political risk rising from US presidential elections. Speaking at the same event, Jaitley said the tenor of the election debate is protectionist during the elections, but may never translate into action once the government is elected.
“I think the fears are real because it is increasingly becoming more and more protectionist. But my own experience has been that some statement made during elections, the burden of governance subsequently brings about a change. It has happened in elections world over including the US also,” said Jaitley. Jaitley also said that his talks with the representatives of the UK assured him that the country will continue with the policy of open trade despite its decision to exit the European Union.
Separately, governor Patel also highlighted the need for better policies among BRICS countries to manage commodity price cycles better. “Outlook for commodity prices generally remains soft. But there is a need for a mechanism that even out large economics effects of commodity prices,” said Patel.
Credits Live Mint