India’s Chief Economic Advisor is optimistic about the country’s recovery, according to a keynote at the 2023 Nomura Investor Forum Asia.
Strong underlying momentum will continue to buoy India’s economic growth as it overcomes the peak of its inflation, says the country’s Chief Economic Advisor.
India’s central bank is expecting GDP growth of 6.5% for the upcoming financial year, which begins on April 1 and ends on March 31. The probability of achieving this target is evenly balanced on both the upside and downside, said V. Anantha Nageswaran at the Nomura Investment Forum Asia, held in Singapore this month.
“Two months into the financial year… I have become more optimistic,” Nageswaran said. “The recovery is now entrenched. Yes, there are always areas that can be improved. But by and large, we are comfortable with where the economy is.”
Dual risks in FY23-24
Sonal Varma, Chief Economist, India and Asia ex-Japan at Nomura, identified two risks to the Indian economy for the upcoming financial year: the agricultural repercussions of El Niño, a natural climate phenomenon that causes global temperatures to rise, and the potential US recession.
India, in principle, could ride through the effects of El Niño as the country has adequate irrigation levels, water storage, seeds availability and buffer stocks, according to Nageswaran.
“We are prepared to handle the consequences of a weak monsoon on prices and output, but sentiment in India may be impacted,” Nageswaran said.
Meanwhile, a mild US recession could bode well for India, Nageswaran said. If the US encounters a recession, there may be positive spillovers on oil energy demand, which will lower oil prices despite OPEC’s efforts to control production.
Manufacturing a brighter economic future
India is also currently doubling down on its domestic value chain, with the government emphasizing the production-linked incentives scheme to boost manufacturing and reduce imports. The country aims to increase manufacturing as a share of GDP, green shoots of which are visible in the telecom and electronic sectors. However, it may take some time for the manufacturing push to materialise more visibly in the numbers as international companies are holding off on decision-making amid a turbulent economic environment.
“This is a story that is unfolding,” according to the Chief Economic Advisor, referring to the uptick in women's employment, the rise of manufacturing quality, and India’s increased integration in the global value chain. Nageswaran acknowledged the market sentiment of India becoming the world's factory floor.
“It is not an empty slogan; we are seeing many shifts happening,” Nageswaran said.
Energy security concerns during the net-zero transition
The economy is currently running on autopilot, Nageswaran said, as the current mix of growth, inflation, and external factors remains manageable. However, a possible disorderly energy transition towards a net-zero environment is a risk factor for the economy in the medium term.
As a developing economy, India must secure its energy needs even as advanced countries emphasize carbon emissions reductions and mitigation. Given that carbon emissions will remain in the atmosphere for many centuries, India faces and will face the consequences of the emissions already out there. Therefore, Nageswaran views investing in energy adaptation and climate resilience as a priority in the next 10-15 years instead of solely focusing on mitigation.
“It doesn’t bode well for us who have to mind both [economic] development goals and climate goals,” Nageswaran said. “Only when we have economic growth will we have the resources to finance climate transition.”
Overall, developing countries need to be mindful of balancing energy transition ambitions in a way that does not affect economic growth outcomes and aspirations, Nageswaran said.
To watch the full keynote, visit the Nomura Forum website (requires guest login).
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