Speaking exclusively to CNBC-TV18 on the sidelines of the Singapore Fintech Festival 2024, Nageswaran said the government’s forecast range already accounts for some of the mixed macroeconomic indicators that we are currently seeing.
India’s GDP growth outlook
“I can’t speak for others’ forecasts, but even in our latest monthly economic report, we did stick to 6.5 to 7% range as the likely real GDP growth outcome for the current financial year. So, as far as we are concerned, in a way, our forecasts already account for some of the high-frequency data indicators that we have been seeing lately,” he said to CNBC-TV18.
When asked if it was possible that India’s GDP growth rate may not touch 7% levels, the CEA said, “That is possible, (but) we have given ourselves a wider range. Whether the outcome falls at closer to 6.5% or closer to 7%..we have still five months to go. I think it is still somewhat speculative in nature to say whether we will fall towards the upper end of the range or lower end of the range. At this point, I think it is still early days.”
The CEA pointed to factors like private and public capital expenditure as well as urban consumption as positive growth drivers, though he flagged global financial market volatility as a potential risk.
Impact of Donald Trump’s re-election on India
While early indicators showed Donald Trump’s return as the US President, the final outcome of the count was awaited during the time of this interview. When asked how Trump’s re-election would impact India, the CEA indicated that it would cause no disruption for the country.
Nageswaran expressed a view of continuity for India if Donald Trump were to be re-elected as U.S. president. “Donald Trump has been President before; we all know the policies he stands for,” he said, emphasising that Trump’s policy agenda on trade and financial markets is well known.
“He has been a president before. We all know what are the policies he stands for and in any case, first of all, the results are not fully out yet. So, depending on the outcome and if he is the president next, we all know his political economic policy agenda and what it means for global trade, etc,” he told CNBC-TV18 during he interaction.
He added that there would be time to prepare until January, when a new U.S. president would take office, giving Indian policymakers the opportunity to strategise around potential policy shifts. “So, we all have our own time to prepare and the respective ministries will obviously have to prepare themselves for what kind of economic policies they will follow and the implications it will have for trade, financial markets, etc..I think at this point, there are many areas where we ourselves are working on which will be in line with their policy agenda. So, I don’t see a major discontinuity or dislocation from the Indian perspective.” He added, “from a global perspective, my baseline scenario is continuity for India.”
Headline inflation not the best indicator of demand
Referring to the recent comments in the finance ministry’s monthly economic review on headline inflation not necessarily being the best indicator of underlying demand, Nageswaran told CNBC-TV18, “There are times when headline inflation may not be the most because, for example, between 2003 and 2008 in the United States or developed countries, for example, headline inflation was very well behaved, but the financial markets were really overheating and real estate markets were overheating, etc. It can also happen the other way around, when headline inflation is high, but the underlying demand conditions may not be as hot as the headline inflation may be. Then we need to look at what is contributing to headline inflation- if it is a generalised price increase or if it is concentrated in a few areas,” he said, implying that a nuanced approach is necessary for assessing demand.
Credit growth slowdown: Temporary concerns
The CEA down-played concerns over a slowdown in credit growth, noting that credit had grown at a 5.5% rate in the first half of the financial year, translating to an 11% annualised rate. Historically, credit growth has outpaced nominal GDP growth, and Nageswaran suggested that current credit trends might be influenced by macroprudential actions and the economic impact of the monsoon season. “Credit growth should pick up when some of the macroprudential actions have run their course,” he commented, adding that with improving economic activity, credit growth is likely to rebound.
Concern on quality of job creation
Speaking earlier at a panel during the Singapore Fintech Fest, where he was responding to a question on why India’s growth had not resulted in adequate job creation, the CEA said, “there is no issue with job creation itself,” pointing to data from sources like the Employees’ Provident Fund Organization and private job indices which showed otherwise.
“I don’t think job creation itself is an issue. What we’re focused on is the quality of jobs being created,” he said. “There’s evidence, whether from the unemployment rate, registrations with the Employee Provident Fund, or private sector job indices that jobs are being created. But the real question is about the quality of those jobs, which is ultimately more important.”
“People say unemployment is lower because we are counting agricultural employment,” he added. “That’s partially true. It’s statistically true. But however, the jobs that are being created in rural India are also now people working on their own, not in unpaid jobs, but generating their own incomes, etc., and participating in family enterprises. I wouldn’t consider that as disguised unemployment.“
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