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Informist, Friday, Nov. 8, 2024

 

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--CEA: Early indicators of rural growth promising 
--CEA: India can cut import duties gradually to become globally competitive 
--CEA: On track to increase share of mfg sector in GDP 
--CEA: Savers turned investors welcome; don't want savers to turn speculators 
--CEA: FY25 govt capex could be higher than FY24 
--CEA: Cannot rule out possibility of FY25 growth overshooting forecasts 
--CEA on FY25 GDP: Would be happy if our estimate is wrong, RBI is right 
--CEA: Will be happy if RBI's FY25 GDP estimate of 7.2% comes true 
--CEA: Mkts should wait for a while to gauge full impact of US election 
--CEA: Incorrect to attribute rupee depreciation to just US election outcome 
--CEA: Should not overestimate early days of post-US election mkt reaction 
--CEA: 2nd leg of post COVID econ growth depends on small business, MSME 
--CEA: Centre, states have to de-regulate MSMEs, small businesses 
--CEA: Small businesses need to do more to contribute to econ activity 
--CEA: India well positioned politically, economically 
--CEA: If labour income doesn't rise, it may adversely impact profit of cos 
--CEA: Incentive-based work compensation has dented household savings 
--CEA: October data to reflect Centre accelerated pace of capex 
--CEA: October data reflects Centre accelerated pace of capex 
--CEA: New US administration may open new doors for India trade 
--CEA: Global growth is steeped in uncertainty 
--CEA: India needs to diversify energy sources 
--CEA: India on cusp of becoming middle income econ 
--CEA: US election result could lead to easing of Red Sea crisis 
--CEA: US election results positive for energy prices 
--CEA: Impact of general, US election results will be felt over time 

 

MUMBAI – Finance ministry's Chief Economic Adviser V. Anantha Nageswaran on Friday said he would be happy to be proved wrong if India's GDP growth turns out to be 7.2% in 2024-25 (Apr-Mar), as projected by the Reserve Bank of India. "I would be happy if our estimate is wrong and the RBI is right," Nageswaran said at the Business Standard BFSI Summit. 

 

The finance ministry's Economic Survey has projected India's GDP growth in FY25 at 6.5-7.0%, lower than the RBI's projection of 7.2%. Nageswaran said high-frequency indicators so far suggest that India's GDP growth is aligned to the 6.5-7.0% forecast.

 

Admitting that he was not a big believer in projections, the chief economic adviser said there was a possibility of the GDP growth in FY25 overshooting the targets. 

 

The chief economic adviser's comments come amid talk of a slowdown in the Indian economy, with data over the last month and a half suggesting growth momentum cooling down. However, the central bank has maintained that though the picture is "mixed", the positives outweigh the negatives. India's GDP grew 6.7% in Apr-Jun. The GDP growth data for Jul-Sep will be released on Nov. 29.  

 

After the release of Apr-Jun data, Nageswaran had said that India's GDP growth in FY25 may be above 7.0% if the structural changes and schemes like the employment-linked incentive scheme announced in the Budget are implemented timely. His optimism about India's growth story then came amid a clouded view on global growth which he said was "steeped in uncertainty".

 

Nageswaran on Friday echoed RBI Governor Shaktikanta Das' recent comments that early indicators of rural growth are promising. He said India's economic growth is on track to achieve the intended increase in the share of the manufacturing sector in GDP. 

 

On government expenditure, Nagewawaran said capital expenditure has started picking up in Jul-Sept and the government's fiscal data for October will show heightened capital expenditure. According to the Controller General of Accounts data, the government has only spent 37.3% of its full year target on capital expenditure in Apr-Sept compared with 49.0% in the corresponding period of last year. 

 

Even as capital expenditure picked up in September at INR 1.140 trillion, the highest so far in FY25, it was still lower than the INR 1.168 trillion spent in the same month of last year. Even though capital expenditure is a laggard so far, the chief economic adviser said that full year's capex spending could be higher on year. The Budget has projected the government's capital expenditure in FY25 at INR 11.11 trillion, up 17.1% from last year.

 

Nageswaran further said that though the first leg of post-pandemic growth has happened, the second leg of growth will depend on the growth of small businesses and micro, small and medium enterprises. Though there is adequate policy support from the Centre to help small-scale businesses, Nageswaran said many policies - especially those related to ease of doing business - are dependent on state governments. "So, in that sense, state governments should look into deregulating MSMEs and small business for them to be able to grow," he said. 

 

Another issue that needed to be ironed out, Nageswaran said, was labour income. The government's capex model was to create a multiplier effect and crowd in private investments, but many argue that the latter has not happened so far. He said increasing labour wages will eventually increase the company's production and that will aid profits/top line and push private capex.

 

On labour incomes stagnating, he said that in the last few years, companies have shown a shift towards incentive-based work compensation rather than increasing salaries. This had more than one negative ramification, he said. The key downside of incentive-based compensation was the dent that it made on household savings. In June, the RBI had said in its Financial Stability Report that India's household debt warrants "close monitoring" from the perspective of financial stability as financial liabilities are rising while household savings are falling.

 

India's household debt rose to 40.1% of GDP as of December-end from 38.2% a year ago. While the stock of household debt in India is relatively low compared to other emerging market economies, in relation to GDP per capita, "it is comparatively high", the RBI had said.

 

Overall household savings fell to 18.4% of GDP in FY23 from an average of 20.0% of GDP over FY22. Combined with the rise in financial liabilities, net financial savings declined to 5.3% of GDP during FY23 from an average of 8.0% during 2013-2022.

 

This rising household debt, along with the shift towards newer savings instruments have warranted repeated warnings from regulators. Nageswaran reiterated on Friday that the issue with the shift towards newer asset classes was the huge flow into speculative markets like futures and options. "Savers turning into investors is always welcome, speculators are not," he said.

 

The government has been keeping an eye on ballooning trade volumes in the equity futures and options segment, where many retail participants have burnt their fingers in the last few years.

 

TRUMP VICTORY

 

On the election of Donald Trump as the US president, Nageswaran said that Indian markets should not overestimate or be overly worried about the initial reaction and must wait a while to gauge the full impact. In fact, he said there have been two major elections for the Indian economy this fiscal – the General Election and the US election – and the outcome of both will be felt over time.

 

Trump's proposed protectionist policies have left investors fearing outflows from emerging markets, with the Indian rupee closing at an all-time low of 84.28 a dollar on Wednesday. Nageswaran said it would be "incorrect" to attribute the depreciation of the rupee to just the election outcome.

 

On the upside, he said that changes in the US administration could open newer trade opportunities for India. He said a new leader could perhaps delegate global trade discourse and find a resolution to the Red Sea crisis that has troubled Indian exporters for a year now. 

 

Since last November, Iran-backed Houthi rebels have been targeting container ships passing through the Red Sea route--which accounts for 30% of the global container traffic. This has forced shipping vessels to take the longer route, driving up freight charges. "The opening of the Red Sea route will help lower tariffs, freight costs and increase trade volumes," Nageswaran said. 

 

He also said that at a time when India needs to diversify its energy sources, the US presidential election could yield positive results for energy prices. 

 

On global trade, Nageswaran said that while the Budget has done some work, there was scope to further rationalise import duties gradually. "This will make our domestic market more attractive," he said.  End

 

Reported by Priyasmita Dutta

Edited by Saji George Titus

 

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