Remarks at the Macro Week, 2024 SPEECH

Remarks at the Macro Week, global governance frameworks that better reflect
the realities of today’s global economy. The current
2024* system, while foundational, needs to reform itself
to ensure equitable voice and representation for the
Shri Shaktikanta Das emerging economies. Enhanced access to resources
and a stronger role in the governance of institutions
I am happy to be here today at the Macro
such as the International Monetary Fund (IMF) and
Week 2024 organised by the Peterson Institute
the World Bank will not only enhance the legitimacy
for International Economics (PIIE). The Institute
of these institutions but also foster more serious
has established itself as a leading forum, bringing
global cooperation in addressing macro-financial
together public policy practitioners, central bankers,
challenges.
industry leaders, research professionals and scholars
to brainstorm on emerging macroeconomic issues. Second, on the agenda should be the debt
Such discussions, especially on the sidelines of restructuring mechanisms. While the G20’s Debt
the International Monetary Fund and World Bank Service Suspension Initiative (DSSI) and the Common
meetings, provide fertile ground for rigorous and Framework for Debt Treatments were commendable
meaningful interactions on matters of contemporary measures, the scale of the problem is much larger.
policy relevance. Debt restructuring processes remain ad hoc, slow, and
– on several occasions – not sufficiently transparent.
In my remarks today, I propose to share some of
This results in protracted crises, causing unnecessary
my thoughts on the international monetary agenda
economic suffering for the debtor countries. We need
and its relevance in a world confronted with economic
an overhaul of the debt resolution architecture and its
and financial fragmentation. I shall also touch upon
refashioning into one that involves both public and
why and how climate change needs to be part of
private creditors, ensures timely debt restructuring,
central bank narratives.
and links debt relief with sustainable development
I. International Monetary Agenda objectives. Without such reform, the vulnerable
Global economic dynamics is shifting rapidly, countries will continue to face unsustainable debt
driven by forces such as technological transformation, burdens which will have repercussions for global
geoeconomic realignments, environmental challenges, financial stability.
and the ongoing global geopolitical disruptions. In this Third, we must recognise the fragility and fault-
rapidly changing context, it is incumbent upon the lines of the global monetary and financial system,
G20 and international monetary institutions to adapt both institutions and markets. Recent years have
swiftly and act decisively to foster global stability highlighted the risks posed by financial instability,
and sustainable growth. I would like to highlight six in both advanced and emerging markets. There
areas of priority in this context, not in any order of indeed is a pressing need to improve global financial
importance. regulation to manage systemic risks posed by private
The first and foremost priority should be capital and non-bank financial intermediaries, which
accorded to reforming the international financial now hold significant portions of global assets. The
architecture. This involves prioritising inclusive rise of shadow banking and fintech, and the growing
footprint of decentralised finance, require more robust
* Remarks by Shri Shaktikanta Das, Governor, Reserve Bank of
India At the Macro Week 2024 organised by the Peterson Institute for regulatory oversight to prevent contagion effects and
International Economics (PIIE), October 25, 2024, Washington DC. ensure financial stability as a global public good.

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SPEECH Remarks at the Macro Week, 2024

The fourth area of concern is the digital divide. We live in an era of high uncertainty and turmoil,
As the global economy becomes more digitalized, where the job of policy makers is something like
countries that lack the infrastructure, skills, and steering a vast, interconnected fleet through turbulent
regulatory frameworks for digital inclusion risk seas, where the old maps no longer suffice. The time
falling further behind. The G20 and the international for incremental changes has gone. What is needed now
monetary and financial institutions should work is a transformative action agenda which would ensure
towards nurturing an ecosystem that promotes that the global economic and financial architecture
investment in digital public infrastructure, and serves all nations and peoples and not just a select
widespread adoption of digital technologies while few. With collective action and renewed commitment
ensuring cybersecurity and privacy safeguards. to multilateralism, we can build an international
monetary and financial system that is truly fit for the
Fifth, geopolitical tensions are increasingly
21st century.
affecting economic policies, leading to sanctions,
weaponisation of finance, trade restrictions and II. Economic and Financial Fragmentation
supply chain disruptions. This is causing economic Global co-operation and the integration of global
fragmentation, as countries aim for strategic markets, in particular, were instrumental in driving
independence in key areas like energy, technology and decades of world growth. For many low-income
strategic materials like semiconductors and critical countries and emerging markets, this integration
minerals. The G20 must play a key role in preventing into the global economy was a crucial contributor
further economic fracturing by promoting open and to their development. It provided them access to
rules-based trade systems. While recognising the need affordable imports, extensive export markets, and
for countries to secure their supply chains in tactically foreign technology. Now, however, geo-economic
important sectors, the G20 should foster cooperation fragmentation is weighing on the outlook for global
in areas such as technology transfer, investment in growth.1 The geopolitical risk index2 has spiked sharply
global public goods, and green transition. in 2024 amidst increases in trade restrictions and
Sixth, perhaps and above all, climate finance must financial sanctions. This has reversed the substantial
be at the forefront of the G20’s priorities and the benefits from global economic integration3. There
international monetary and financial agenda. are now fears of de-globalization and increasing
The international financial system must mobilise regionalization. This could dampen the convergence
significantly greater resources to fund the transition to of emerging and developing economies to better
living standards. Geopolitical risks are also imparting
a low-carbon economy. The G20 must also coordinate
heightened volatility to capital flows and asset prices.
national efforts to ensure that climate policies do
They are also undermining the efficiency of the global
not lead to protectionism, unilateral trade barriers or
payments systems.
trade conflicts. The rise of border carbon adjustments
(BCAs) and similar measures must be managed Cross-border flows of goods, services, and
through cooperative frameworks to avoid unnecessary capital have levelled off since the global financial
economic fragmentation. Additionally, there is an 1 A study by IMF staff in August 2023 suggested that greater international
urgent need for innovative financial instruments trade restrictions could reduce global economic output by as much as 7
percent over the long term, or about USD 7.4 trillion in today’s dollars.
that can incentivise private capital to flow into
That is equivalent to the combined size of the French and German
climate related efforts. Without a fundamental shift economies, and three times sub-Saharan Africa’s annual output (The High
Cost of Global Economic Fragmentation, IMF Blog, August 2023).
in the way the international monetary and financial 2 Caldara, Dario. and Iacoviello, Matteo (2022), “Measuring Geopolitical
systems address climate finance, we risk exacerbating Risk”, American Economic Review, Vol. 112, No 4, April, pp. 1194 1225.
environmental degradation and global inequality. 3 Financial Stability Report, RBI; June 2024.

12 RBI Bulletin November 2024

Remarks at the Macro Week, 2024 SPEECH

crisis. Recent geopolitical events have further for markets. New parallel systems that lack inter-
fuelled protectionism alongside an increase in trade operability may emerge, which means higher
and logistics disruptions4. For many low-income transaction costs and other inefficiencies.
countries and emerging markets, potential losses due Strengthening crisis preparedness to deal with the
to de-globalization could be much greater. Despite fallout from these tensions, including unanticipated
these downside risks, it is heartening to see recent ones, should be a policy priority for emerging market
projections which suggest global goods trade will economies. The global financial safety net must be
post an increase of 2.7 to 3.1 per cent increase this reinforced through mutual agreements between
year5. Even as this near term resilience gives hope, countries. This may include regional safety nets,
remaining alert to the changing winds is important currency swaps, fiscal mechanisms, and precautionary
while preparing for an increasingly uncertain outlook. credit lines from international financial institutions.
If these things do not happen, emerging economies
Recently, global value chains (GVCs) have also
will have to substantially augment their own safety
seen significant disruptions due to both geo-political
nets and buffers.
events and overarching issues like the pandemic and
climate crisis. This has raised concerns regarding III. Central Banking and Climate Change
the reliability of the GVCs as engines of growth. Traditional views on climate change policy have
Discussions regarding ‘friend-shoring’ and ‘reshoring’ given way to a more updated multi-regulator approach
are spreading dissonance and fears of discriminatory to tackle the unfolding repercussions of extreme
measures against foreign competitors. In such a trade climate events. Manifestation of these risks through
environment, it is the ‘bystanders’ that would be demand-supply shocks, productivity losses, asset
disproportionally affected. revaluations and transition to a low-carbon ecosystem
Other forms of fragmentation — like technological at high cost can impair financial, monetary and price
decoupling and disrupted capital flows — would also stability6. To my mind, the question, therefore, is
have their adverse effects and raise costs. They can not whether central banks should take into account
also impact funding costs of banks and domestic climate change but how should this consideration be
financial institutions, reduce their profitability, and integrated to their central mandates. This involves,
prompt them to contract lending, with potentially first, understanding the impact on price stability, given
adverse effects on economic activity. Building up the high costs and other transition risks involved in
adequate international reserves as well as capital and progressing towards a low-carbon economy7. Second,
liquidity buffers within the national financial systems it is important to assess the impact on financial
would be vital to reduce the vulnerability of emerging stability in all its ramifications8. Third, it is necessary
economies to such adverse external shocks. to balance micro prudential responsibilities9 to

Finally, there is the apprehension that if geo- 6 Climate change now holds prominence in the work programmes of
the Financial Stability Board (FSB) and the Basel Committee on Banking
economic fragmentation continues unabated,
Supervision. The Network for Greening the Financial System (NGFS),
countries may seek to become less reliant on the which was set up in 2017 at the initiative of eight central banks, now
includes 141 members and 21 observers, comprising central banks or
international financial infrastructure and global prudential authority.
standards. Fragmentation of the international 7 Monetary Policy and climate change- Key takeaways from the
monetary system could have serious implications membership survey and areas for further analysis, July 2023 – NGFS.
8 The Implications of Climate Change for Financial Stability, Financial
4 Chapter 1, Geoeconomic Fragmentation: The Economic Risks from a Stability Board, 2020.
Fractured World Economy. CEPR and IMF, 2023. 9 Principles for the effective management and supervision of climate-
5 Global Trade Outlook and Statistics, WTO, October 2024 & World related financial risks, Basel Committee on Banking Supervision (BCBS),
Economic Outlook, IMF, October 2024. 2022.

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SPEECH Remarks at the Macro Week, 2024

help financial institutions to manage material risks climate action, each country – based on its domestic
associated with climate change. Fourth, robust conditions – has to decide between having explicit
analysis and research are needed to enable advocacy climate mandate for the central bank or subsuming it
and thought leadership10 in this space11. into its price and financial stability mandate.
The Reserve Bank of India does not have an IV. Conclusion
explicit remit for dealing with climate related risks.
As I conclude, let me briefly speak on the Indian
It is an inferred responsibility derived from its
macroeconomic experience. The Indian economy
macroeconomic and financial stability mandates. This
rebounded from the severe contraction imposed by
has encouraged the quest for suitable instruments
the COVID-19 pandemic and averaged a real GDP
and actionable frameworks. The Reserve Bank of
growth of above 8 per cent during the last three
India has set up a sustainable finance group (SFG)
financial years. For the current year (2024-25), the
within the Bank and has also joined the Network for
Reserve Bank of India has projected real GDP growth
Greening the Financial System (NGFS) in 2021. Some
of 7.2 per cent, with risks evenly balanced around
of the steps already taken by the Reserve Bank include
this forecast. Improving domestic demand, lower
promoting green finance initiatives such as inclusion
input costs and a supportive policy environment12,
of finance to renewable energy projects in directed
are spurring manufacturing activity. The services
lending (Priority Sector Lending) by banks; issuance
sector has been displaying strong growth. The growth
of sovereign green bonds (SGrBs); establishing a
outlook reflects the underlying strength of India’s
framework for acceptance of ‘Green Deposits’; and
macro-fundamentals, with domestic drivers – private
developing a Disclosure Framework on climate-related
consumption and investment – playing a major
financial risks and Guidance on climate scenario
role. The government’s thrust on capex and healthy
analysis and stress testing.
balance sheets of banks and corporates are expected
At the cross-country level, I believe it is important to support private investment. Private consumption,
to give due acknowledgement to the sharp trade-offs the mainstay of aggregate demand, appears to be on
central banks face when dealing with climate-related track for a strong improvement due to the favourable
risks. On the one hand, central banks have to operate agricultural outlook and the pickup in rural demand.
within the confines of their specific legal frameworks Sustained buoyancy in services would also support
and, as publicly accountable institutions, they have urban demand.
to provide rigorous evidence in support of all their
Resilient growth has given us the space to
actions. On the other hand, central bank balance
focus on inflation so as to ensure its durable descent
sheets might already be exposed to climate-related
risks and they may be forced to respond to them from to the 4 per cent target. The headline inflation
behind the curve. trajectory is projected to sequentially moderate from
the last quarter of this financial year. Unexpected
While recognising that the government is the weather events and worsening of geopolitical
most appropriate and effective authority to spearhead conflicts constitute major upside risks to the inflation
10 Central Banks of Australia, Brazil, France, Germany. Japan, Malaysia and outlook.
the European Central Banks have dedicated central bank units working on
climate-related tasks. 12 Government schemes such as Production Linked Incentive (PLI)
11 In May 2021, Reserve Bank set up a Sustainable Finance Group (SFG) scheme, Pradhan Mantri Awas Yojana (PMAY) [expanded to construct 3
within the Bank to effectively counter climate change-related financial crore additional houses], Pradhan Mantri Gram Sadak Yojana (PMGSY)
risks, and for leading regulatory initiatives in areas of sustainable finance [launching of phase IV], National Infrastructure Pipeline (NIP) and viability
and climate risk. gap funding would provide impetus to capital formation.

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Remarks at the Macro Week, 2024 SPEECH

A continuing priority for the Reserve Bank has and growth is well-poised. The external sector
been to strengthen the financial sector. The health demonstrates the strength of the economy. Forex
parameters of banks and non-bank financial companies reserves are scaling new peaks. Fiscal consolidation
(NBFCs) are now very robust. This has resulted in is underway. The financial sector remains sound and
sustained credit flows, especially to the remote and resilient. Global investor optimism in India’s prospects
underserved segments, bolstering financial inclusion. is perhaps at its highest ever. We are, however, not
complacent, especially amidst the rapidly evolving
As I said in my last monetary policy statement,
global conditions.
today, the Indian economy presents a picture of
stability and strength. The balance between inflation Thank you.

RBI Bulletin November 2024 15