India’s economy is expected to grow 7.3 per cent in the current fiscal year ending in March, the highest rate of the major global economies, helped by state spending and a pickup in manufacturing, the National Statistics Office said on Friday. Siddhartha Sanyal, Chief Economist, Bandhan Bank, DK Joshi, Chief Economist, CRISIL and Indranil Pan, Chief Economist, Yes Bank, in conversation with ET Now.
How do you see these numbers and what do these really numbers project for the Indian economy going into 2024?
Siddhartha Sanyal: In the first half of the financial year, we had seen that GDP growth for India had been around 7.6%. This particular number was known for a while. Now, at the same time, till very recently we were expecting that still the full year number will be in the vicinity of 6.5%, that means talking about a significantly lower number for the second half of the financial year, but now the 7.3% with quite a lot of data points already available in hand for the first nine odd months, government clearly is much more confident about the second half growth.
So, it is one story that from about 6.5%, the overall full year number is getting revised to 7.3%, but much more importantly, at this juncture then that means that the second half of the financial year number is getting revised up much more significantly. Also, not to lose sight of the fact that the nominal GDP growth is not spectacularly high. It is a different story altogether that in case of some of the ratios, etc, nominal GDP is used and those ratios may not be getting that particular advantage but for the full year that means the government is predicting a pretty virtuous combo of pretty high growth and relatively low inflation.What is your overall take? We also saw S&P Global Ratings anticipated that India will maintain its status as the fastest growing major economy over the next three years. We also saw the UN recently stating that India’s economy is outperforming peers. So, validation continues to pour in for the Indian economy. What should India do to maintain this growth projection and growth path?DK Joshi: The next year will be a little bit more challenging because the interest rate hike will impact the economy with a lag, so that will come into effect. Global economy is expected to slow down. But having said that, we believe that even in the next fiscal year, India will remain an outperformer as far as growth is concerned. Now, what will be critical for sustaining high growth in future is investment momentum. Right now, the government is supporting investments to a large extent. The baton needs to be passed onto the private corporate sector. There are some positive stirrings there, but overall a broad-based private investment is yet to start. So, the next fiscal will be probably a story of private investment picking up and for that, all the effort should be made because government will be pulling back on its support for public infrastructure creation because they also have to reduce the fiscal deficit over the next couple of years, so they are already on a committed path.
The private sector participation in the investment activity becomes very critical. The other thing to be watched would be how the manufacturing shapes up and there is a lot of attention given to manufacturing now. There is industrial policy that supports manufacturing. So, in the slowing global environment, how manufacturing will play out also remains an important monitorable.
Finally, we need to keep inflation under control. Inflation is still high as far as the central bank’s targets are concerned. So, bringing inflation under control will mean that the monetary policy will not be a drag on growth. It will be more neutral to growth.
Mr Joshi was mentioning that this year the government has spent a lot. There has been a lot of capital expenditure. PLI schemes have also come in. This year is going to be crucial so far as private investment is concerned. Do you see private capex in FY24? Also, how should we see this data in comparison with China’s growth story which has been slowing?
Indranil Pan: Well, to take your second question first, I think it is a pretty simple sort of commentary over there. India still has the dividend in terms of the population and in terms of the demand playing itself out. China has already peaked and China’s population is now an aging population. So, therefore, they will have problems in terms of the consumption.
Plus, given that there has been a significant hue and cry in terms of the environmental issues, China also had to clamp down significantly in terms of some of its manufacturing capacities, apart from the fact that the real estate sector which has been one of the biggest growth drivers in China, that seems to be in a significant spot of bother at this point in time.
So, most of these issues are definitely not there in terms of India and therefore, India is likely a more balanced growth than what we have possibly been seeing in China, which had led to the upswing in terms of the growth pattern and therefore that is I think the commentary in terms of China versus India.
In terms of the other question, I did hear Dr DK talking about the private investments and the expectations in terms of the private investments and I think he was absolutely right in the fact that most of this growth is being driven by the government expenditure which is unlikely to sustain for a significant period of time. Given the high public debt GDP ratio and we have just seen how the state governments have actually surpassed all our estimates in terms of the borrowing numbers, the public debt as a proportion of GDP may not be a very sustained number and therefore the government somewhere will have to take the call in terms of pulling back on the momentum in terms of the capital expenditure and hoping that the private investments pick up the slack.
The private investments, on the other hand, despite all the positive commentary in terms of the twin balance sheet of the corporates and the banking sector being relatively better is not really picking up simply because of the haziness and the uncertainty with respect to the demand side story, both domestic and international.
Unless that cloud clears off, we will see very sector-specific investments from the private sector, sectors that may be linked to the infrastructure spending of the government, maybe the EV space, the renewable space. On a broader scale, we would still not see private investment demand kicking in strongly in the very immediate future.
What are the sector-specific challenges or worries that you see or areas where we need to do a little more?
Siddhartha Sanyal: There are a couple of challenges in the sense that while overall growth momentum in the economy had been significantly strong or eventually got revised upward, another particular point that needs to be figured out is how equitable that distribution remains in terms of the shape of the recovery, whether it is a cliché, whether it is a big key at this moment. So, if that is the case, if there are two-three different styles of growth, how exactly you tend to do a little bit of redistribution, how exactly you tend to do justice to that particular segment, that remains a key question.
One important factor is that in case of India’s overall growth dynamics, consumption or private consumption demand always plays a very key role. I do not know about the distribution of various segments in today’s data, but generally the trend that we have seen is that the usual private consumption growth that India typically has demonstrated has been missing of late.
Rather, there has been a lot of push from government spending and investments which is good for the time being, but at the same time, it is very important to see how private consumption growth in order to make the growth momentum a lot more sustainable and a lot of trying, how exactly that particular thing comes back.
Yo some extent, Mr Joshi also earlier mentioned that particular factor, but that needs to be seen in the coming year and that only will determine or have a very significant bearing on the sustenance of this particular growth momentum in the coming year and we will remain very watchful of that particular factor.
