The global growth situation next year is going to be quite worrying and the impact of rate hikes across the world is going to be the near-term headwinds for the Indian economy, said Dr Aurodeep Nandi, Economist and Vice President at Nomura India. “India’s headline growth number (7.6 per cent in Q2) looks really nice. They have surprised us,” Nandi said while speaking to Business Today TV Managing Editor Siddharth Zarabi at the BT500 Wealth Creators Summit.
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“Two things are driving that (growth) – a very strong urban consumption and public investment by the government. We have seen huge investment by the Centre across states,” Nandi said during a discussion on ‘The Shape of India’s Recovery’. He, however, said now the question is – “what happens to the growth when the public capex slows down?”
“The question is – if you take the government out of the picture, how does the growth scenario look? The place where unease starts is that consumption growth is kind of slowing. It has gone down from 6 per cent to 3 per cent. We have elections coming up – the question is – what happens when public capex slows down,” the economist said.
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Nandi then turned to the possible impact of recent hikes in interest rates by the central banks across the world to contain raging inflation. “The way I think is – 2023 has been the paap (sin) and 2024 is going to be prayaschit (atonement). In 2023, we saw the interest rate raised across the world by 500-550 basis points. The reaction is going to happen next year, possibly in the second half. We don’t know how that will pan out – whether we will have a soft landing or hard landing or recession. Those are going to be the headwinds for the Indian economy in the near term,” the economist said, adding that in the medium term, the country has a positive outlook.
Indranil Sengupta, Economist and Head of India Research at CLSA, said the Indian economy had three challenges ahead of it — interest rate, weak external demand, and a slowdown in rural demand. “There are three challenges that we face. Because the US has been raising rates, the lending rate in India has shot up. External demand is weak and then rural demand. Hopefully, the US Fed is done and the rate cycle can start to turn.”
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Speaking on post-Covid recovery, Sengupta said the different sectors have different growth pace. “Right now, rural is currently seeing a slowdown. When you look at the Kharif crop which just went by, we are looking at farm income contract by 3.5 per cent,” he said, adding that a lot of the consumption demand is coming from urban areas.
“And it is true that there has been a K-shape recovery. And it is not just in India, it is all over the world. We do these surveys which clearly show that the recovery has been much faster at the higher levels of income than lower level – it is a global feature. There has not been any country that has not seen K-shape recovery.”
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Dr Sachchidanand Shukla, Group Chief Economist at Larsen & Toubro, said that the global economy was growing at 3 per cent, while India has become the fastest-growing large economy. He said If the International Monetary Fund’s (IMF) projections for the next five years come true, India will be the fastest-growing economy in 11 of 15 years since 2014. “India has growth, with political stability and certainty,” he said while referring to the smooth transition of power after every election in the country.
The economist said that if one looks at just 6 per cent growth rate that the IMF has projected, and adds 4-5 per cent inflation, the 11 per cent growth rate would be a huge number. “If you use the rule of 72, this is an economy that is going to be doubling every 6-6.5 years.
Speaking on interest rates, Shukla said that In India, the lending rates were back to where they were before the pandemic – so they were not restrictive. “Therefore, we are probably in the Goldilocks period.”
The Goldilocks system refers to a state where there is full employment, economic stability, and stable growth.