‘Govt watching rain impact on rural economy, grain supplies’

Growth in the coming quarter is expected to be slower than Q1? How do you see it panning out?

We don’t do quarterly forecasts. RBI has come out with an estimate of 6.5%. How they arrived at 6.5% estimates is of less consequence for us. I think we are fine with the quarterly breakdown that the RBI considered. So, overall we are looking at 6.5% real GDP growth (for FY 24). We have indicated that the risks are symmetric around the number. At the moment we don’t have any particular reasons to be concerned about deviating from this.

What are the risks to growth in the coming quarters?

The risks are symmetric. They have always been there. We have to wait and see the quantifiable implications of the monsoon shortfall in August, and its impact on rural consumption and rural incomes. All these things will need to be evaluated. These things will be clearer, as August just got over.

Inflation seems to be a major concern. Some of the issues are structural and cyclical like the vegetable inflation. Grain inflation is also high.

I don’t think there’s any particular reason for us to think that grain inflation is a significant problem. As macro economists, we can take a view of the inflation in general. Specific commodities are driven by their demand and supply factors, and commodities like grains depend on various parameters like rainfall, sowing, global prices, etc. The government has its own public distribution system. So, the government is aware of the issues, which is why supply-side restrictions have been placed. The government is very much sensitized to the importance of grains in the consumption basket, especially of poor and low-income households.

The finance minister said monetary policy should not be the only tool for taming inflation. What other fiscal steps are we taking?

Monetary policy (decisions) are a demand management tool. There are supply-side measures that the government has been taking. Also, the creation of infrastructure, Gati Shakti or national logistics policy, PLI scheme, among others, are all ways to augment the supply potential of the economy. These are also medium- to long-term inflation management measures. Because you are after all creating enough supply in the economy so that demand doesn’t create over-heating conditions. And apart from that, there are temporary price control measures, exports restrictions in place, and stock building measures that have been taken by the government.

How do you see monetary policy tightening in the West impacting India?

The higher interest rates haven’t really impacted the US economy itself so far. It appears to be on course for a soft landing, steady growth and declining inflation. It hasn’t had a big impact on capital markets. However, it has had impact on specific sectors, like mortgage rates have gone up in the US, existing home sales have come down; so has been the case in the UK. The Euro zone economy has been slightly more affected by high interest rates, and growth output looks a little more uncertain there. But, there hasn’t been a spillover effect (on India) yet.

Could we see an impact in the latter quarters of the fiscal?

In fact many of them (developed countries in the west) are at the fag end of their monetary tightening programme.

Will FDI inflows will remain tepid this fiscal due to Indian general elections and the US presidential elections?

It’s not possible to make those comments unless we study whether elections in India have appreciable impact on FDI inflows compared to previous quarters, or the year before, without analyzing such patterns closely. I don’t think election cycles in the US impact commercial decisions (of corporates). I don’t see these as issues to FDI inflows.

Is the government confident about maintaining the 5.9% fiscal deficit target considering the divestment target will be unlikely to be met this fiscal?

At this point, with April-July data behind us, I don’t see any particular reason to believe that the 5.9% fiscal deficit target will be difficult to achieve. (That the divestment target will unlikely be met this fiscal) is also offset by higher dividend payments from some other sources (RBI and public sector banks).

You recently said private investment in India has taken off .

We have data, from private financial institutions which tracks cash flow data of over 3,000 companies, which shows that their capital expenditure went up 22.4% in 2021-22 and 18.5% in 2022-23. These investments were widespread, across about 20 of the 24 sectors. We have all pre-conditions in place, cash flows of private sector have been good, cash balance and earnings have been good, capacity utilisation is high, and balance sheets have been repaired both on the lenders side and the borrower side. The visibility of Indian economic growth looks good compared to several other countries.

Is this enough to sustain the growth story though?

These kinds of questions are subjective. About 34.5-35% of GDP going toward investments is not a small number. Even otherwise, if you have excess of investment in one given year, it may even create a scenario of a lot of idle assets. And that can bring strains on the banking system. But, yes, it may be possible for us to grow by 2-3 percentage points but I don’t see that private investment is woefully short of what we need.

Shouldn’t the government take more measures to push manufacturing?

We have to understand that global trade conditions are sluggish, so exports will suffer. Globally we do have a problem with growth (in trade) and post-covid recovery. In this situation, our exports did recover in 2021-22 and kind of maintained the level in 2022-23.

Even now, I will not say that merchandise exports are falling off the cliff. They are not. So, in the context of the current global demand, I will not be too concerned about the situation.

Do you think there could be need to recalibrate the government’s capex for the fiscal to stimulate growth especially during the later quarters of the fiscal?

Not at this stage.

How do you think the slowdown in China will impact India?

We can always learn lessons for any country, not just China, depending on what caused the slowdown, imbalances, and sectoral excesses. We can learn about these from any country whether it is China, Sri Lanka, USA, UK, Germany or any other country. To give you an example, if other countries in the region have problems with external debt, we can also learn from them and go back to our drawing board. China, we know, had impressive growth for a long time, and they have high levels of public and private sector debt. They have a very high investment ratio and a low consumption ratio. Real estate sector dominated their economy for sometime. These are all well-known facts. As far as we are concerned, a slowdown in growth in China has a limited relevance for us at this point of time.