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Dec 21, 2022 10:14:16
India is poised to become the world’s fastest-growing major economy in the coming year as a post-pandemic retail boom and recent bank balance sheet adjustments attract new investment and spur higher demand for everything from cars to televisions, coal and aircraft.
The world’s fifth-largest economy is expected to grow 6 percent in the fiscal year ending March 31, 2024, according to a survey by India’s central bank this month, Reuters reported.
Although slower than the current fiscal year’s 6.8 percent growth, this contrasts with gloomy 2023 forecasts in the US, Europe and, most notably, China, a key Asian economic competitor where a recent surge in Covid infections is expected to hamper activity next year. .
Crucially, conditions are better than last year’s crippling decline during India’s devastating Covid outbreak, but also better than the anemic growth of the debt-ridden over the past decade.
A more upbeat mood is boosting spending and investment in India, although the recovery is expected to be uneven, benefiting urban and domestic sectors more than rural and export-oriented economic regions.
“If India does everything right, we could see substantial foreign inflows in the next couple of years,” said Sreedhar Sivaram, director of investments at Eenam Holdings, a privately managed investment group.
He is more bullish on Indian banks, which are having a “Cinderella moment” popularized by billionaire-banker Uday Kotak, due to high credit demand and reduced defaults.
India’s weight in the MSCI emerging market index has already risen from 8 percent in 2019 to 16 percent by October 2022, Sivaram said.
Foreign portfolio investors sold a net $18 billion this year, but turned buyers in November and December, with financial stocks accounting for a third of inflows last month.
Long-term foreign direct investors inflowed $22 billion into India between April-October 2022, on par with the previous year. Computer software, services firms, trade, non-conventional energy and chemicals accounted for more than half of inflows this year through September, according to government data.
Random rebound
Economic activity picked up after a third wave of Covid infections in 2021, which was less severe than feared and led to the lifting of most Covid restrictions, freeing up demand for cars and consumer goods in urban areas.
Pradeep Bakshi, chief executive of consumer appliances company Voltas, said sales were driven by easy financing options such as backlog of orders and buy-now-pay-later schemes, which reduce down payments for consumers.
Demand for services such as hospitality, travel and leisure rose 7.4 percent in the September quarter from the same period in 2019, before the Covid crisis hit, GDP data showed.
“After a period of not knowing if we would survive, we are back in expansion mode with a vengeance,” said Anjan Chatterjee, managing director of Specialty Restaurants, which operates restaurants across the country.
Overall, private consumption in the September quarter rose 7.8 percent from pre-Covid levels in 2019, while a sharp increase in government spending lifted fixed capital formation, a sign of investment activity, by 13.5 percent from 2019, GDP data showed.
Investment recovery
India’s reopening is one reason demand for electricity and coal is strong, pushing the government to increase gas imports, while more companies seek bank loans as they add capacity.
Air India, for example, is eyeing major orders for 500 jetliners worth tens of billions of dollars from both Airbus and Boeing, Reuters reported this month.
However, not all indicators represent the same level of economic strength.
Unemployment rose to an average of 7.4 percent in the last 12 months to November, compared with 6.3 percent in 2018-19 and 4.7 percent in 2017-18, the Economic Observatory of India estimated.
High inflation, seen by the central bank at an average of 6.7 per cent in 2022-23, has weighed on spending in rural areas, where wage growth has not been on par with urban areas and disposable income is lower.
Production of non-durable goods, sensitive to changes in rural demand, including snacks and soap, contracted more than 4 percent between April-October and 13 percent in October alone, while overall output fell 5 percent in the month.
Exports for goods such as textiles have also started to weigh as global demand declines.
However, broad hopes were buoyed by the potential for new private investment after a decade in which Indian corporates were highly profitable and banks saddled with bad loans, which made businesses reluctant to spend.
Eenam Holdings’ Sivaram says order announcements have picked up, though “a capex cycle will take two years to come to revenue”.
Global companies are diversifying supply chains from China, which is also hoped to benefit India.
“In the chemicals sector, we have seen this China-plus-one strategy work very well and we have an advantage over some companies in that sector,” Sivaram said.