Page 11 - CII Artha Magazine

Focus Story

India to Remain ADVANCED growth cycles have been MOST RECENTLY, IN Imported inflation is another post-pandemic recovery

and higher credit growth.
remarkably synchronised with
fallout of rupee depreciation.
NOVEMBER, THE US
ECONOMIES
For non-banks, too,
Elevated commodity prices
those of advanced economies
FED HIKED THE
EXPECTED TO
and a depreciating currency
since the 2000s. Put another
GNPA is expected to
Growth WITNESS SHARP way, there is no escaping the POLICY RATE BY 75 act like a double-edged sword improve 50 bps to 3 per
and remain a challenge at a
BPS FOR THE FOURTH
short-term demand
cent. This bodes well for
GROWTH
fluctuations around the trend.
the financial sector’s
time when the central bank is
STRAIGHT TIME
SLOWDOWN
This reflects India’s greater
trying to bring inflation back
ability to support
NEXT YEAR
Outperformer inter-linkage with the world, Systemically important to its target range. economic growth.
both via trade and financial
The government’s tax
channels. For instance, India’s
advanced-economy central
While there has been some
softening in international
collections remain
export-to-GDP ratio almost
banks, led by the US Fed, are
Despite Global doubled from 11.4 per cent in hiking interest rates to slow commodity prices recently, it healthy and provide
is not in line with slowing
down the demand impulse in
fiscal 2000 to 21.4 per cent in
legroom for capital
expenditure despite
global growth prospects
their economies to tame
fiscal 2022. The share of
inflation. Most recently, in
higher outgo on subsidies
foreign portfolio investment
thanks to geopolitical issues.
For instance, after the OPEC+
(FPI) flows in GDP grew
and revenue loss due to
November, the US Fed hiked
Headwinds almost sixfold, from 2.2 per the policy rate by 75 bps for decided to reduce oil supply, tax and import duty cuts
the fourth straight time, to
crude oil prices started
cent to 12.3 per cent. Greater
on fuels and select
3.75-4.00 per cent. A higher
imported items. For
moving northward again. To be
inter-linkages imply any
change in demand and policies
demand for safe-haven assets
commodity prices are
in advanced countries would interest rate, buttressed with sure, though international instance, the central
government has already
spill over to India and other amidst the ongoing expected to fall next year, they received 52 per cent —
emerging countries. geopolitical turmoil, has led to would remain above the or Rs 10 lakh crore — of
massive appreciation of the pre-pandemic 5-year average. this fiscal’s budgeted net
A multitude of headwinds economies and some decelerate more than that in high prices and rationing of The domestic economy has US dollar. The US dollar index, tax revenue of Rs 19.3
emerging market economies.
continue to make global
emerging market economies.
energy, and the European
which measures the strength
lakh crore in the first half.
already started feeling the
growth prospects gloomier. Many of the latter are Central Bank would follow brunt of global headwinds, of the US dollar, rose 10.8 per GLOBAL LINKAGES Most of this is on
OF THE INDIAN
These include rising interest S&P Global recently lowered benefiting from higher the US Fed because of the both in the real and financial cent between January and ECONOMY IS LIKELY account of higher inflows
rates, geopolitical tensions, its 2022 global growth commodity prices and have depreciation of the euro economies. India’s core October, indicating TO CAST A SHADOW through the Goods and
which are keeping forecast by 20 basis points seen a lower surge in inflation, versus the US dollar, fuelling (non-oil, non-gold) exports depreciation of currencies ON ITS GROWTH Services Tax, income tax
international commodity (bps) to 3.1 per cent and thereby requiring a less imported inflation. The contracted an average 7.8 per against the greenback. Rupee, PROSPECTS and corporate tax.
prices elevated, broader 2023 forecast by a greater stringent monetary policy Eurozone’s gross domestic cent on-year in the last three for instance, depreciated from
European energy insecurity, 110 bps to 2.4 per cent. response. product (GDP) would then months, with the decline in 74.4/US dollar to 82.3/US The government’s focus
and lingering effects of Global growth faces increased contract 1.3 per cent next October being as high as 16.9 dollar. That said, it has The Indian economy’s several on capital spending,
Covid-19 (particularly in headwinds next year, evincing S&P Global projects US and year. per cent. To be sure, advanced appreciated to ~81/US dollar structural strengths will help coupled with its plan to
China). that monetary policy actions Eurozone economies to grow economies account for ~45 in the last few days. This is cushion the blow from the lower the fiscal deficit
work with a lag. To be sure, a mere 0.2 per cent and 0.3 The slowdown in the global per cent of India’s important because exchange external headwinds. The only gradually, should
As advanced-economy central this year, growth in many per cent, respectively, next economy, especially in the merchandise exports. The US rate movement (along with domestic financial sector and continue to support
banks raise rates aggressively parts of the world (barring year, in the base case. In the advanced world, poses and European Union, which other factors such as growth corporate balance sheets are investment and
to tame inflation, they will find China) received support from downside scenario, where downside risks to India’s together account for 72 per outlook and risk perception) robust. Corporates have been consumption demand in
it hard to stave off a sharp pent-up demand as high inflation persists and the growth outlook. Our analysis cent of advanced economies’ plays an important role in deleveraging: the median the economy.
downturn in economic Covid-related US Federal Reserve (Fed) is of the long-term growth GDP, are the two largest driving FPI flows. No wonder, gearing ratio (a measure of These factors will help
activity. In fact, the latest restrictions were forced to tighten the movements export destinations, with 18.0 with some appreciation in the indebtedness) of the CRISIL soften the blow from
survey-based indicators eased after monetary policy more posits that per cent and 15.4 per cent rupee lately, FPIs have once Ratings portfolio is expected global headwinds to
(purchasing managers’ almost two aggressively (rates hiked to at despite share, respectively. With both again turned net buyers in to touch a decadal low of less some extent, but they
indices), which gauge the years. least 5.00-5.25 per cent by being on these economies projected to Indian capital markets — they than 0.5 this fiscal. Hence, cannot completely
momentum of economic mid-2023, and remain higher slow down sharply next year, net bought US$3.2 billion in strong balance sheets are insulate India. The impact
activity in the Growth in for longer), the US economy India’s exports are likely to the first half of November — expected to shield India Inc will be more pronounced
manufacturing and advanced could contract 0.3 per cent divergent remain under pressure. On after being net sellers in amidst global uncertainties. next fiscal, when the peak
services space, have economies is next year. Meanwhile, paths, the other hand, given India’s September and October, Banks remain well capitalised, impact of the global
turned into the expected to Eurozone, in the downside India’s healthy growth momentum, withdrawing an average and CRISIL expects gross slowdown and rate hikes
contractionary zone in scenario, would see imports continue to be US$0.4 billion. The bottom non-performing assets materialises. That said,
most advanced buoyant, which means net line is that foreign flows are (GNPA) of the banking sector India will remain a
trade is going to remain a expected to remain volatile in to improve 90 bps to 5 per growth outperformer
Mr. Dharmakirti Joshi, Member, CII Economic Mr. Adhish Verma, Senior Economist, CRISIL
Affairs Council & Chief Economist, CRISIL drag on growth. the near term. cent this fiscal, thanks to this and next year.
10 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 11
QUARTERLY JOURNAL OF ECONOMICS
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