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Informist, Wednesday, Nov. 6, 2024

 

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--RBI Das on US polls:India-US relations to continue irrespective of outcome
--RBI Das:Indian macro fundamentals resilient to tackle external spillovers
--RBI Das: India econ well placed irrespective of US election results
--RBI Das: IIP, urban FMCG sales only data points that have moderated
--RBI Das: Econ data coming in is mixed
--RBI Das: Overall incoming data mixed, but positives outweigh negatives
--RBI Das: Economic activity remains robust
--RBI Das: Jul-Sep subsidy outgo up, may negatively impact GDP print
--RBI Das: Subsidy outgo remains an issue
--RBI Das: Govt expenditure has started picking up
--RBI Das: Agriculture, services sector doing well
--RBI Das: Won't rush to say that econ is slowing down
 

 

MUMBAI – Reserve Bank of India Governor Shaktikanta Das Wednesday said that irrespective of what the US presidential election outcome is, the Indian economy is well-placed and resilient to mitigate any external spillover that may arise. Das' comments came when the counting of votes for US election was under way in its initial phase. However, as the counting of votes progressed, Republican candidate Donald Trump was very close to securing a majority. 

 

At 1338 IST, Trump had won 267 electoral votes and was just three seats shy of getting a winning majority. In contrast, Democratic Party candidate and Vice-President Kamala Harris had won 224 electoral seats, Associated Press reported. Globally, volatility was more pronounced in government debt and currency markets ahead of the big event. The dollar index rose as early exit polls appeared to be bent slightly towards Trump. On Tuesday, the benchmark 10-year US Treasury note yield rose to a high of 4.37?fore shedding gains on a solid auction, and closed lower. 

 

Both Harris and Trump were expected to be fiscally expansionary, which is seen driving long-term bond yields higher in the US--and consequently in India. Trump, however, is a bigger risk on fiscal profligacy based on his stated policies on taxes, tariffs and immigration. These are likely to drive global bond yields higher in the medium term. This would lead to a stronger dollar index, weighing on the Indian rupee in the medium term.

 

Das, however, was not too worried about any volatility in domestic markets as the strong fundamentals have the strength to absorb the shocks, if at all. More importantly, he said that India has shared a strong relations with the US and that is likely to continue irrespective the election outcome.
 

Das' comments on the Indian economy being resilient also come at a time when there have been early warnings from many quarters about a possible slowdown in GDP growth, which saw above 7% growth for three straight financial years. The central bank governor said that "high-speed indicators of growth" show a mixed picture, and that he would not rush to declare that the economy is not slowing down. "The positives outweigh the negatives," Das said, at Business Standard BFSI Summit. 

 

This comes when the RBI staff have cut their forecast for India's GDP growth in Jul-Sept to 6.8%, keeping it 20 basis points below the central bank's official projection. "Our economic activity index (EAI), based on a range of high-frequency indicators, projects GDP growth at 6.8% in Q2:2024-25 (Jul-Sept)," the RBI's monthly State of the Economy article--which includes Deputy Governor Michael Patra as one of its co-authors--said on Oct. 21. The views expressed in the article did not reflect the central bank's official stance.

 

The September edition of the article had forecast GDP growth in the Jul-Sept at 7.0%, 20 bps lower than the RBI's official projection of 7.2%. However, on Oct. 9, the RBI lowered its growth projection for the quarter to 7.0%. India's GDP growth had slid to a five-quarter low of 6.7% in Apr-Jun, missing forecasts given by economists and the RBI. GDP data for Jul-Sept is scheduled to be released on Nov. 29.

 

Out of the key economic indicators, Das said that India's industrial production and urban consumption of fast-moving consumer goods have moderated, showing a possible slowdown. These have shown some moderation, but there are many more--like GST and e-way bill generation--that continue to grow. 

 

Latest data shows India's industrial production contracted 0.1% on year in August, a contraction for the first time in 22 months and the lowest since October 2022. The fall in output was largely due to an unfavourable base effect. Industrial output had grown 10.9% in August last year. For Apr-Aug, India's industrial output expanded 4.2%, lower than the 6.2% recorded in the same period last year.
 

On other hand, FMCG companies' stocks have taken a hit following muted financial results for the Jul-Sept quarter. Among major FMCG players, Dabur India's results were affected by an inventory correction, which analysts explained as a sign of weak demand from dealers as they had not managed to sell their earlier inventory. Dabur India's consolidated net profit for Jul-Sept fell nearly 18% on year to INR 4.25 billion and its consolidated revenue fell nearly 6% to INR 30.29 billion.

 

Das circled back to the lower-than-projected Apr-Jun GDP print and reiterated that it was lower owing to a slowdown in government expenditure during the quarter, which has started picking up in Jul-Sept. The government has only spent 37.3% of its full year target of INR 11.111 trillion on capital expenditure so far this fiscal. Last year, the government had spent 49.0% of the full-year capital expenditure target during Apr-Sept. 

 

Even as capital expenditure picked up in September at INR 1.140 trillion, the highest in FY25, it was still lower than the INR 1.168 trillion spent in the same month last year. While capital expenditure has lagged in FY25, revenue expenditure has continued to rise. Revenue spending was up 4.2% on year at INR 16.965 trillion in Apr-Sept.

 

Das also mentioned that the high subsidy payout by the state governments as well as the Central government during Apr-Jun led to a lower than 7% growth. The Centre spent INR 901.74 billion on major subsidies during Apr-Jun, up 24% from last year. He added that higher subsidy outgo, in fact, remains a concern and may impact the Jul-Sept GDP print negatively. In Apr-Sept, the Centre spent INR 2.15 trillion on major subsidies, up 4% from the corresponding period last year. For Jul-Sept, the central bank has lowered its projection for GDP to 7% from 7.2?rlier.

 

Irrespective of the downsides, Das said that the agriculture and services sectors are robust and will contribute to the GDP print. End

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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