India’s strong credit demand and softening crude oil prices could buoy the economy, putting the South Asian country on course for a 6.5% expansion this fiscal year, according to Chief Economic Adviser V Anantha Nageswaran.
These indicators together with an uptick in construction activity may shield the economy from slower global growth and weather-related risks, the CEA said in an interview at his New Delhi office.
Data next week is likely to show the economy expanded 7% in the year that ended March, according to Bloomberg estimates compiled on Thursday. While higher borrowing costs might have slowed some activity, India remains the world’s fastest-growing major economy, outpacing China and drawing foreign inflows into the equity markets.
“In the economic survey we said 6.5% is our baseline with the downside risks more than the upside risks and we maintained it in the April monthly economic report,” said Nageswaran, who advises Finance Minister Nirmala Sitharaman, and is the lead author of the government’s annual economic report card.
“Now I am incrementally, slightly more inclined to move to the neutral range, in saying risks to this number are evenly balanced in the kind of position I am willing to take,” he added.
So barring the monsoon and geo-political risks, India’s economy is on a “steady auto-pilot” and “ticks all the right boxes at this point,” Nageswaran said.
High frequency indicators compiled by Bloomberg showed India’s economy gaining momentum in April thanks to higher tax collections and a booming services sector. However, exports and imports declined, smudging the outlook for Asia’s third-largest economy.
For Nageswaran, the data is positive overall. Trade is “not singing a different tune” as goods exports are falling on slowing global demand and the decline in imports is due to lower crude oil prices, he said.
The stable current account deficit and rising foreign exchange reserves are all giving positive signs, he added.
Inflation has slowed to an 18-month low of 4.7%, but a hot summer, which could impact crops, is fueling concerns. Other inflation risks could come from volatile global commodity prices as India is a major importer of crude and edible oils.
Nageswaran said he is “confident about the inflation trajectory” and sees it slowing further to 4% by next year if crude prices stay low.
Source Name:Economic Times