State of the Economy

Tuesday, September 4th, 2018

Good interview on the state of the economy with Pranjul Bhandari and Ira Dugal

 

 

Some of my key takeaways:

  • Narrowly focused GDP growth – financials being led by personal loans and not industrial credit which is a worry
  • Potential growth is close to 7.1 per cent. January to June we have been growing above potential and this would normalise over the next two quarters. 
  • Signs of economy overheating: core inflation was shooting up which prompted the two rate hikes. Now with growth rates coming down, core inflation will normalise as well
  • Non-agricultural activity and wages in the rural economy have been picking up led by construction on the government side
  • Private sector capex intentions have improved but they are probably waiting for elections to get over before investing in new capacity
  • Exports have been picking up but the acceleration of imports, led by demand for things like smartphones, means the deficit is widening
  • India’s investment cycle over the years has been increasingly linked to global capex cycle, which has been favourable more recently
  • Food prices remain low but areas sown at 95 per cent which could lead to strong demand for labour. This would give comfort on rural wages.
  • Consumption growth looks strong but increasingly been driven by personal loans and the e-commerce effect
  • GST rebates have become more timely, which is likely to be supportive of exports
  • Imports are likely to accelerate more sharply. Any acceleration in investments will also lead to higher imports
  • Our growth differential with the world continues to widen and with increasing imports, this will put further pressure on the current account and the currency 
  • GST collections are running behind expectations but government could meet it some other way. At worst there will be some fiscal slippage
  • After elections potential growth is likely to rise. Growth inflation mix is healthy with inflation expectations coming down. The monetary policy committee is probably underrated as a reform and has had the impact possibly as great as the GST


About the author

Rishad is the founder of Kairos Capital. He started his career with Standard Chartered Wealth Management and has extensive experience in markets, particularly in terms of mutual funds and stocks.

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