Want to follow on with what Richard said.
The downgrade in India's growth forecast has been pretty extreme, is down to six
point one percent. Back at the beginning of the year was
seen as eight point two. But still with the fastest growing
economies in the world, IMF says still a bright spot cannot remain a bright spot.
If these growing pressures on the global economy push this global economy into
recession, what does that mean for India?
Well, thanks for having me. Indeed, we have downgraded the Indian
growth for this year to six point eight percent, six point one percent is what
we are projecting for the next fiscal year.
So for FII 22 23, we are still looking at six point eight percent.
This is down from seven point four percent in July.
And the main reason is the external headwinds, the heightened global
financial conditions, mostly driven by tighten monetary policy in advanced
economies. The Fed by the Fed mostly, but also the
continued fallout from the war in Ukraine and the sanctions on Russia,
which have driven up commodity prices and weaken global demand.
So these are the headwinds that India is facing and that have, you know, driven
us to reduce growth to six point eight percent in the current fiscal year.
And the one the other the other side of this coin, I guess.
Growth and inflation, the inflation rate at seven point four percent in
September. Food price is definitely a big driver
there. Well above the RBA is 2 percent to 6
percent target, though, for the Reserve Bank of India.
What does this mean? A 50 basis point hike at this point?
Or maybe a not so aggressive because they think these food prices are going
to come off. Well, that's right.
Inflation increased to seven point four percent in September.
We had seen this coming because food prices were increasing in September.
Food price inflation has been a challenge and has complicated the task
of the RBI to bring inflation down below the upper level of the tolerance ban.
So if you look at the consumer basket today, about 25 percent of that basket
is constituted of food and beverages, which are have been increasing at six
point above 6 percent so far this year. So that's the challenge.
But another 20 percent of the basket is non-food non fuel, which has also been
increasing at above 6 percent. So the RBI is addressing the issue.
They have raised interest rates. So far we have seen one hundred and
ninety basis points increase in interest rates so far this year and we expect
more to come, more needs to be done to bring it down.
We do expect inflation to start coming down next year.
We are looking at 5.1 percent average inflation for the next fiscal year.
F what, 23, 24? Well, the IMF is warning that aggressive
central bank rate hikes around the world are hitting the emerging market of
nations developing harder, very hard. And then certainly it's been an issue
for the rupiah. How is that going to play out and what
other appropriate steps for the Indian government to take?
We have seen, indeed, you know, currencies all around the world
depreciate both in advanced economies and emerging markets because of the very
strong dollar driven by aggressive interest rate increases in the Fed in
this circumstance, given the external shock, given the external commodity
price shock as well. We would expect currencies to depreciate
Dani Burger. This is the right response to let the
currency depreciate. So we have seen the rupee depreciate by
about 10 percent so far this year. The RBI has also intervened to counter
excessive volatility in markets. We have seen foreign exchange reserves
decline, but the RBI is still sitting on a large stash of foreign exchange
reserves. And we think that the external position
is still quite comfortable. How much louder, how much room does the
RBI have on rates? I mean, how much can they go without
sacrificing growth? Too much for India itself is
structurally perhaps. How much efficacy does monetary policy
have overall? That's a very good question.
I mean, there is a sacrifice ratio here. You need to raise rates to contract
demand and fight inflation. That is driven by demand.
But you also need to take care of your economy.
The economy has recovered pretty well from Covid.
But we still see a slight negative output gap.
And more importantly, if you look at different sectors, some have come back
more than fully, but others are still coming back from Covid.
So it's a it's a calibration exercise. You have to balance growth and inflation
objectives at the same time. Now, what about the efficacy part of my
question? Well, the RBI has been increasing policy
rate this handily and effectively this year.
And we do expect that to feed through the economy and start bringing inflation
down starting next year. Okay.
If we look ahead, what's more of a concern for India in the future?
Would it be a global recession or sticky prices?
Well, you know, the headwinds facing India's economy are significant.
As I mentioned, there is the global financial conditions that I think you
can see and we see more of that to come. What looks like, you know, the tighter
global financial conditions and the tighter monetary policy by the Fed
still. We still see more to come from that, the
war in Ukraine and sanctions on Russia. We don't see an end to that very, very
time anytime soon. So that's a big also
looming clouds on the on the horizon. So, you know, these are issues of
concern to us for India's growth.