Q1 GDP growth seen at 14-15% on services’ revival

Source: Economic Times, 18 July 2022

The Indian economy likely grew at 14-15% in the first quarter of the current fiscal year, riding a recovery in contact-intensive sectors even as the rest of the economy held firm despite multiple headwinds, a poll of economists indicated. While uncertainty still looms, economists say the worst may be over.

GDP data for the first quarter will be announced on August 31.

The median estimate in the poll of 10 economists was 14.43%. It pegged FY23 growth at 7.2-7.6%. The Reserve Bank of India (RBI) has forecast 16.2% GDP growth for the first quarter and 7.2% for the fiscal year.

High-frequency indicators released during the first quarter show that there is a pick-up in economic activity despite global headwinds, said Abheek Barua, chief economist, HDFC Bank.

The recovery in contact-intensive sectors such as travel, cinemas and dining among others as the pandemic abated, supported the economy even as high inflation took a toll on some consumer sectors.

The recovery in contact-intensive sectors such as travel, cinemas and dining among others as the pandemic abated, supported the economy even as high inflation took a toll on some consumer sectors.

Nomura said improvement in high-frequency data has been broad-based across consumption, investment, industry and the external sector, although exports have started to struggle.

“Overall, we expect sequential momentum to remain strong in Q1 FY23,” said Aurodeep Nandi, India economist and vice president at Nomura.

High commodity prices, steep inflation and rising interest rates have dented sentiment, but the impact in the June quarter has been limited.

GDP to grow at 7.2%: Nomura says US recession can impact India’s growth

Source: Financial Express, 24 June 2022

Nomura has forecast India’s GDP to grow at 7.2% in 2022, before moderating to 5.4% in 2023. In a research note on Thursday, the research firm said the ‘prolonged mild recession’ in the US can lead to a slowdown in India, which has been recovering to a pre-pandemic level. The rate hike by the Federal Reserve can also dampen the investor spirit, it said.

Nomura released its Nomura India Normalization Index to track the growth of various sectors in India. According to the index, the service sector is above 40 percentage points (PP) as compared to the pre-pandemic level. The country is seeing a broad-based improvement across almost all the sectors including consumption, investment, industry and the external sector, the note said.

Some of the areas that could worsen the economy’s growth are negative sentiment shock for consumers, supply chain disruptions, worsening energy availability and tighter financial conditions.

The economic growth already faces headwinds from inflation, which continues to remain higher than Asian peers.

“We view the RBI’s new inflation forecast of 6.7% y-o-y for FY23 as optimistic and believe inflation is yet to peak, with our projection being at 7.5%. We maintain our forecast for a terminal repo rate of 6.25% by April 2023, with a 35 bps rate hike in August, followed by 25 bps rate hikes in each of the following four policy meetings. Risks appear skewed towards more front-loaded hikes and higher terminal rates. We also expect 100 bps of CRR hikes in the second half of 2022”, Nomura said.

According to the research firm, the economy is racing back to above-normal levels, with consumption 14 pp above pre-pandemic levels (PPL). Investment, industry and the external sector are also doing significantly better compared with the pre-Covid period. The key surprise has been the services sector which had been trailing 4 pp below PPL as of March but is now trending at close to 40 pp above the PPL. “Overall, our measure of aggregate demand is now 35 pp above PPL and supply is around 17 pp above PPL”.

Economy has shown exemplary resilience: Chief Economic Adviser V Anantha Nageswaran

Source: Financial Express, 12 June 2022

India has displayed remarkable resilience in recovery after a Covid-induced slump in growth, chief economic adviser (CEA) V Anantha Nageswaran said on Saturday. The country has also managed to keep price pressure under check at a time when even developed nations are grappling with runaway inflation, he added.

Addressing an event on Indian Economy: Prospects, Challenges and Action Points at Haryana Institute of Public Administration, the CEA stressed that key indicators of the economy have crossed their pre-pandemic levels. The latest GDP data showed real growth in FY22 exceeded the pre-pandemic (FY20) level by 1.5%, private consumption by 1.4% and fixed investment by 3.8%. On a year-on-year basis, the economy grew 8.7% in FY22 from -6.6% in the previous year.

“Today, we have a strong revival of private investment, and the country has comfortable forex reserves to withstand turbulence in the international currency market. The exponential growth of digital payments in India during the last few years is an indication of fast changes in the informal sector,” Nageswaran added.

The developed world is moving from low to high inflation and “it is in such times that we have managed to keep inflationary pressure under check”, Nageswaran said. Inflation in the US, for instance, hit a fresh 40-year high of 8.6% in May. India’s retail inflation scaled an 8-year peak of 7.79% in April.

Quick and decisive policy interventions by the government, duly supported with monetary measures by the central bank, have enabled the economy to stage a smart rebound, the CEA said. With its strong fundamentals, the Indian economy is much better placed now than many others, he added.

As per the projections of the International Monetary Fund, India will become a $5-trillion economy by 2027, against over $3 trillion now, Nageswaran said.

Earlier this week, he had said if the dollar GDP of the country doubled every seven years, India would emerge as a $20-trillion economy by 2040 with a per capita income of close to $15,000.

Ahead of the Q4 GDP numbers, here’s what the economists are saying

Source: Economic Times, 31 May 2022

The GDP growth for the fourth quarter of the previous fiscal year (2021-22) will be out today and if the estimates are to be believed, the economy slowed on the back of Omicron variant and rise in commodity prices.

India’s economy likely slowed in the fourth quarter and is expected to grow between 3.5-5.5 percent, economists predict.

The fourth quarter economic growth is likely to see a dip due to the impact of localised restrictions during the Omicron wave and higher commodity prices due to the Russia-Ukraine war that impacted the margins of firms.

Early and excessive heatwaves have affected the production of rabi crops which could bring down the GDP growth rate somewhere near 5.5%, said Madan Sabnavis, chief economist, Bank of Baroda

ICRA and HDFC Bank estimated the growth rate for FY22 at 8.9%. ICRA’s chief economist Aditi Nayar suggested that the services sector might grow at 5.4% due to increased demands witnessed this year. However, the agriculture and industry segments might suffer a dip this time.

Higher input costs and supply side pressures could slow down the growth rate. Barclays’ chief India economist, Rahul Bajoria, said, “We forecast India’s economic growth slowed to 3.7% year-on-year”.

Mobility restrictions due to Omicron fears might affect the GDP numbers for the quarter. Radhika Rao, executive director and senior economist, DBS Group Research, predicted the number to land somewhere near 3.7% for the fourth quarter of FY22.

“Growth likely hit a road bump in the final quarter of FY22 on a high base as well as onset of the Omicron variant which had necessitated temporary localised mobility restrictions,” said Radhika Rao, executive director and senior economist, DBS Group Research, pencilling in 3.7% growth for the quarter.

A Reuters poll suggested that the upcoming GDP numbers might stumble because of increased inflationary pressures along with the ongoing Pandemic concerns.

The estimated average growth for 2021-22 stood at 8.7% as suggested by a Reuters poll last month.

India in much better place to face Ukrainian crisis due to its successful macroeconomic management of pandemic: IMF official

Source: Financial Express, 21 April 2022

The successful macroeconomic management of the Covid-19 pandemic has resulted in a strong recovery of India’s economy because of which the country is in a better position to face the economic fallout of the current Ukrainian crisis, a top official from the International Monetary Fund has said. Observing that India represents about seven percent of the total world economy in purchasing power parity (PPP) terms and is one of the countries that are growing rapidly, IMF’s Mission Chief for India Nada Choueiri told PTI that India’s growth is lifting the global economy and is very important for a well-functioning global economy.

“So, here you have an important contribution. The other important role that India is playing today is in the provision of vaccines,” she said on Wednesday. As a significant vaccine producer, India has a role also in managing future pandemics, she said.“The macroeconomic management of the pandemic has resulted in a strong recovery although the recovery remains incomplete. So, India is in a much better place today to face the crisis from the Ukraine shock than it was at the time of the taper tantrum. But the global economy is in a very difficult place today because of the shocks,” Choueiri said.

Giving her impression about the performance of the Indian economy during this global economic crisis beginning with the Covid-19 pandemic, she said India took important measures on a spectrum of policies.“We saw sound fiscal management to get things right, to create fiscal space, to respond to the immediate needs of the population. We also saw proactive monetary policy to respond to the needs of the financial system and of the corporate sector to support the liquidity needs during the pandemic,” she said.

In its latest World Economic Outlook, the IMF downgraded its projections from its previous of nine per cent growth for the year 2022 to 8.2 per cent (a drop of 0.8 percentage points) this year. Choueiri explained that this was largely due to the war in Ukraine.“About 0.6 percentage points of that is because of the war in Ukraine and the impact on India’s economy. There are several channels that we can consider. The first and the most immediate channel is of course oil and other commodity prices. We have seen these have shot up and we expect them to remain high for a long period of time,” she said, observing that this has an impact on real incomes and hence on domestic demand, which will bring down growth.

The IMF official said the other channel is of external demand which is a global economic slowdown because of the war in Ukraine, particularly in Europe, an important trading partner for India.“We expect this to reflect lower external demand for India’s exports. So, exports will grow at a slower pace than we had been expecting in January,” she said, explaining the reasons for the 0.6 percentage drop in India’s GDP growth projections this year because of the war in Ukraine. Another 0.2 percentage point drop is the base effects, she said.

“Because we have updated our database. Compared to January, we have releases of the Q4 data and some historical data that were updated. So, these are base effects that translate into 0.2 percentage lower growth. So, from nine, we went to 8.8 because of these base effects. And then we went to 8.2, so 0.6 percentage points lower because of Ukraine,” she noted.

Choueiri said India is on a recovery path from the economic fallout of the pandemic. There was a very sharp recession in fiscal year 2021, where GDP declined by 6.6 percent. And there was a strong recovery from that last year. The estimate for growth for last year is 8.9 percent.“This is a strong rebound. And this is despite a very severe second wave, which happened in the first quarter of the financial year that just ended. So, despite that we see a strong recovery having taken place last year and the recovery is still continuing,” she said.

India’s growth will slow down to 6.9 percent next year, as per the latest projections, and will stay around seven percent for the next few years.Responding to a question on the challenges being faced by the Indian economy, Choueiri listed the Ukrainian war at the top of the list.“The risks are that this war becomes even more protracted and the solution further away. And so, economic dislocation and disruptions to supply chains and to commodity markets becoming even more severe than what we are expecting. So, this is a big risk that we worry about.” Another risk that we worry about of course is still the pandemic. We are not over from the pandemic,” she said.

India is today among the most vaccinated countries in the world. But the risk of new variants that can resist the vaccines are still there. And this is something that we need to be watchful for, she said.“The third biggest risk is a shift in global financial conditions, the IMF India chief said. Today inflation is a big worry in a lot of advanced economies in Europe, in the US and there is a sense that maybe monetary policy will need to tighten faster than anticipated by markets.
“So, if there is a significant shift in monetary policy beyond what the market expects to try to tame these inflationary pressures, this could cause an abrupt shift in global financial conditions, which could have a negative impact on India,” she said.Choueiri said compared to other countries, during the pandemic India was able to use judiciously the policy space that it had.

“We saw that the authorities mounted a strong fiscal, monetary and financial sector response to provide liquidity support to MSMEs and corporates, to provide support to help protect the poor households through in kind and cash transfers; to support rural employment schemes,” she said.According to Choueiri, the fiscal management got a number of things right in particular, for example, increasing the fuel excise at the beginning of the pandemic when prices dropped significantly to create fiscal space.

“This additional fiscal space created has helped India provide the support that it did during the pandemic,” she said.“So, we think that in terms of macro-management of the economic crisis India faired pretty good and was able to use the policy space that it had to provide support,” she said, adding that it was a similar performance on the monetary policy space as well.

Observing that in terms of the Ukraine war a whole slew sets of challenges are coming on top of the pandemic crisis, Choueiri asserted that a number of strengths will help India whether this shock.“First on the external sector, we see that the central bank has significant amount of foreign exchange reserves that would help against, weathering adverse global financial condition shocks,” she said.

On the level of food supply, which is threatening the global economy, especially emerging markets and the developing economies, India has a strong production of staples that will help insulate it from this food crisis, she asserted.“So, the Ukraine shock is still unraveling. And we have to see what specifically the policies are going to be to address this, but so far, we see that (India has) the right instruments in place to manage this crisis,” she said.

The IMF India chief said that given the shock to oil and food price, on the fiscal side, India could consider having additional support to those that are directly impacted by this in the form of additional direct in-kind transfers or, cash transfers to the most vulnerable population.Choueiri said there was a need for monetary policy to be watchful of second round effects and to communicate how they see the second-round effects and what would be the actions taken to try to stem them and prevent a sustained high inflation in India.

India’s high growth rate positive for world, says IMF’s Kristalina Georgieva

Source: Financial Express, 21 April 2022

A high growth rate for India, as projected in the latest World Economic Outlook, is not only healthy for the country but also positive news for the world, Managing Director of the International Monetary Fund Kristalina Georgieva has said. The IMF, early this week, projected a “fairly robust” growth of 8.2 per cent for India in 2022, making it the fastest-growing major economy in the world, almost twice faster than China’s 4.4 percent.

The global growth has been projected at 3.6 percent in 2022, down from 6.1 percent in 2021.”India is one of the economies that are growing at a high rate. Even with the small downgrade, growth is projected for this year to be 8.2 percent. Healthy for India, but also positive in a world where growth slowdown is creating a major problem,” Georgieva told reporters at a news conference here on the sidelines of the annual spring meeting of the IMF and the World Bank on Wednesday.

On Monday, she met the visiting Indian Finance Minister Nirmala Sitharaman. She said India already plays a very important international role.“By exporting vaccines during the pandemic, it has delivered a global public good,” she said in response to a question.“India is also committed to lead in renewable energy with the International Solar Alliance, another area where the world needs more determination, more progress,” she said.

“And, it is a country that is on the frontline of digital currencies, especially central bank digital currency and how it handles a reduction of risk from crypto assets for the Indian people and businesses,” Georgieva said.Noting that next year India is going to be the Chair of the G20, Georgieva said she very much looks forward to working with the country on many key global cooperation issues, including the 16th General Review of Quotas that should be finalised by the end of next year.

Fed rate hike may have limited impact on India: Economists

Source: Financial Express, 18 March 2022

The US Federal Reserve’s decision to raise the interest rate for the first time in over three years will have only a limited spillover effect on India, as the markets have mostly priced in the impact, economists told FE.

Monetary policy will continue to be anchored by domestic macro-economic conditions rather than global factors. However, the liquidity tightening measures by the Fed and some other key central banks may force the Reserve Bank of India (RBI) to adopt a less dovish tone in its next policy meeting in April, while continuing with its accommodative stance to support growth, they said.

Moreover, given the strong macro-economic fundamentals, India is well-prepared to absorb any external shock. The RBI and the government, too, have the necessary tools to blunt much of the additional spillovers, they added. In fact, the stock markets on Thursday discounted the rate hike by the Fed. The Sensex gained as much as 1.8% to hit 57,864 points.

Saugata Bhattacharya, chief economist at Axis Bank, said, “Anticipating the global policy tightening, foreign portfolio investors (FPIs), the main channel for the spillovers, have already exited the Indian equity and debt markets over the past couple of months, with close to $19 billion outflows since October 2021.” The remaining holdings are likely to be of more long-term investors, who could be less inclined to sell their portfolio, he added.

ICRA chief economist Aditi Nayar said there are upside risks to domestic inflation and downside risks to growth relative to the monetary policy committee’s (MPC’s) last set of forecasts, complicating monetary policy decision making. She expected a “shallow rate hike cycle” with two repo hikes in FY23, modest relative to the seven rate hikes insinuated by the Fed dot plot.

“Regardless, G-sec yields will rise ahead of the increase in the repo rate, mirroring the trend in global interest rates,” she added.

Madan Sabnavis, chief economist, Bank of Baroda, said the latest Fed’s decision was a foregone conclusion; hence the immediate impact will be muted. “But yes, we cannot ignore the Fed rate hikes as this would mean the FPI flows will be affected, which typically impact currency, and hence will be monitored closely by the RBI.” Also, the rate hike means growth trends in the West are good, which means higher demand for commodities. This, in turn, means higher inflation, which could ultimately affects the government’s decisions on excise rates on fuels and subsidies.

Yes Bank chief economist Indranil Pan said the RBI, in the April meeting, will likely revise up its inflation forecasts but continue to “bide time and not raise policy rates to allow growth to take a firm hold”.

Pan said the bigger risk for India out of the Ukraine crisis is the downside to growth rather than an upside to inflation. “This is because the business cycle conditions in India are anyways weak at this moment, as it tends to crawl out of the hit from the pandemic. Structurally the economy was weak even pre-pandemic and some of the structural bottlenecks have probably worsened in the course of the pandemic – for example inequality issues and its impact on growth,” Pan said. The RBI will look forward to the fiscal policies to reduce the inflationary pains.

India GDP growth forecast cut to 7.9 pc: Morgan Stanley

Source: Financial Express, 13 March 2022

As higher oil prices torpedo economic recovery worldwide, Morgan Stanley has cut India’s GDP forecast for the fiscal year beginning April 1 by 50 basis points to 7.9 per cent, raised retail inflation projection to 6 per cent and expects current account deficit to widen to 3 per cent of GDP.

“Even as we expect the cyclical recovery trend to continue, we expect it to be softer than we previously projected,” it said in a report. “We believe that the ongoing geopolitical tensions exacerbate external risks and impart a stagflationary impulse to the economy.”

India is affected through three key channels — higher prices for oil and other commodities; trade, and tighter financial conditions, influencing business/investment sentiment.

“Building in higher oil prices, we trim our F23 GDP growth forecast 50bps, to 7.9 per cent, lift our CPI inflation forecast to 6 per cent, and expect the current account deficit to widen to 10-year high of 3 per cent of GDP,” it said.

India is 85 per cent dependent on imports to meet its oil needs and the recent spurt in international oil prices, which pushed rates to a 14-year high of USD 140 per barrel before retracting, will result in the country paying more for the commodity. Also, higher prices will result in inflationary pressure.

The key channel of impact for the economy will be higher cost-push inflation, feeding into broader price pressures, which will weigh on all economic agents — households, business, and government. Regarding India’s exposure to macro stability risks, Morgan Stanley said even as macro stability indicators are expected to worsen, lack of domestic imbalances and focus on improving the productivity dynamic will help to mitigate risks.

“As such, we do not expect that fiscal or monetary policy will need to tighten disruptively to manage macro stability risks. The risk would stem from a further sustained rise in oil prices, leading to quick deterioration in macro stability and currency volatility,” it said.

The brokerage expected a repo rate hike in the June meeting of RBI’s Monetary Policy Committee. “But we now expect the April policy to mark the process of policy normalization with a reverse repo rate hike.”

“However, if the RBI were to delay its normalization process, the risk of disruptive policy rate hikes would rise. We see less room for fiscal policy stimulus to support growth given high deficit and debt levels – we see a possibility of a modest fuel tax cut and reliance on the national rural employment program as an automatic stabilizer,” it said.

The report saw upside risks of 0.5 per cent of GDP to the fiscal deficit target of 6.4 per cent of GDP for FY23 (April 2022 to March 2023).

“We see risks skewed to the downside for growth and to the upside for inflation and the CAD,” it said. “Again, the key risk would be a sharp and sustained rise in oil prices, exacerbating macro stability concerns and leading to disruptive monetary tightening. Further, risks could arise if global growth conditions weaken further, which would impair India’s export and capex cycle.”

India GDP estimated at Rs 147.5 lakh crore in FY22: Chaudhary

Source: Economic Times, 08 February 2022

India’s gross domestic product (GDP) is projected to grow at 9.2 per cent to Rs 147.5 lakh crore in 2021-22, Minister of State for Finance Pankaj Chaudhary said on Monday. In a written reply to a query in the Lok Sabha, Chaudhary said the government has implemented several major reforms in recent years to boost investment and GDP growth.

“As per the first advance and first revised estimates of GDP released by the National Statistical Office (NSO), the size of real GDP has been increased from Rs 105.3 lakh crore in 2014-15 to Rs 135.6 lakh core in 2020-21 and estimated to be Rs 147.5 lakh crore in 2021-22,” he said.

In FY 2020-21, he said that as a major part of its policy response to the pandemic, the government while providing a safety net to the vulnerable sections of the society implemented several structural reforms to strengthen private sector investment.

These include the change in the definition of MSMEs, new PSU policy, commercialisation of coal mining, higher FDI limits in defence and space sector, development of the Land Bank and Industrial Information System.

It also includes the revamp of the viability gap funding scheme for social infrastructure, new power tariff policy and incentivising states to undertake sector reforms, among others, he said.

Biz activity grows to new high despite Omicron threat: Nomura

Source: Economic Times, 14 December 2021

Mumbai: Despite fears of the Omicron variant, business activity touched an all-time high since the onset of the pandemic for the week ended December 12, a Japanese brokerage said on Monday. The Nomura India Business Resumption Index (NIBRI), which compares the activity for a particular week as against one before the onset of the pandemic, rose to 115.8 from the 112.9 for the previous week.

“Despite Omicron risks, neither policy restrictions nor public fear factor appear to have had any impact on mobility so far, which is supporting a further normalisation in services,” it said in a statement.

The labour participation rate picked up to 41.4 per cent from 40.5 per cent — its highest in eight weeks — and power demand reversed last week’s fall with a 3.7 per cent gain, it added. 

After supply-constraint induced declines in August and September, industrial output growth rose sequentially in October, although its pace appears to be plateauing. 

India remains at risk of virus setbacks since those fully vaccinated account for only 37.5 per cent of the overall population, it said, adding data thus far suggest that incremental growth momentum in Q4 may be driven more by services and re-opening and less by industry.