Madan Sabnavis: ‘Changes in the West will affect our trade’

We support saying that India’s system volition turn astatine implicit 7 per cent. We person had these dreams of making India a $5-trillion economy, a $10-trillion economy, a developed federation with assorted targets. So erstwhile we got this fig of 5.4 per cent for the 2nd quarter, personally, I was a spot amazed due to the fact that we were anticipating astir 6.6-6.8 per cent.

The system is broadly divided into 3 parts: the superior sector, oregon agriculture, the secondary sector, oregon manufacture — which includes mining, manufacturing, and energy — and the services sector, which includes trade, transport, communications, the fiscal sector, existent estate, and nationalist administration.

When you look astatine the breakdown of each these sectors, we spot that agriculture has been doing well, and this was earlier the Kharif harvest, which takes spot from October onwards, successful September, but chiefly successful October and November. In services, too, radical are spending a batch of money.

But successful the concern sector, we saw that maturation came astatine astir 2.5 per cent, which is precise anaemic. A heavy dive into manufacturing reveals that it is chiefly a request problem. Multiple FMCG companies, chiefly the MNCs, person attributed this to municipality stress. We cognize of agrarian stress, which is erstwhile the monsoon fails. Similarly municipality stress, I think, implies a autumn successful request owed to higher prices oregon higher inflation. This whitethorn beryllium due to the fact that the input costs for companies person gone up ever since the Ukraine warfare successful 2022, and they person been holding backmost connected expanding the last prices of their products. Over the pursuing years, from the extremity of 2023, they person begun expanding merchandise prices.

More importantly, we person seen that portion ostentation has been successful this portion of 5.5-6 per cent, nutrient ostentation successful peculiar has been treble digits. Due to precocious nutrient inflation, we walk much wealth connected necessities, and determination is little wealth near for discretionary spending. So we walk little connected manufactured goods. People were spending little connected products similar mobile phones, tv sets, toasters and different kinds of household goods. Automobile income were besides little successful September.

Also, successful September, we person this play called Shraddh. This happens for astir 2 weeks each year. If you’re a devout Hindu, you travel this signifier of austerity and don’t bargain immoderate user goods. People bash not bargain automobiles oregon mobile phones, due to the fact that they deliberation it’s inauspicious, and indispensable hold for the bully times. So successful September, adjacent earlier the firm results came out, we saw that car income were down, but accumulation was higher and inventories had built up. Going into October and November, we saw that each these goods really got sold successful a month. So this has besides contributed to the little maturation which we person seen successful the manufacturing.

Now, surprisingly, erstwhile you look astatine services, we spot tourism and hospitality doing precise well. A batch of radical were going for what we telephone experiences and travelling, careless of their income level. Depending connected your wallet, you went to a place, you stayed successful a hotel. So the hospitality manufacture did precise good successful each 3 months.

Overall, 5.4 per cent is not atrocious erstwhile we analyse the numbers. It’s a reasonably good number, particularly erstwhile we look astatine what’s going to hap successful Q3 and Q4, which we judge volition beryllium different.

On economical prospects successful Q3, Q4

We person seen a batch of turnaround signs. Different economists spot differently. If you privation to get the close representation of what’s happening connected the depletion side, look astatine the data. For instance, look astatine the GST collections. GST is simply a consumption-based tax. GST collections person been implicit Rs 1.8 lakh crore successful October and November. This tin nary longer beryllium attributed simply to compliance — radical are evidently spending money. It’s partially due to the fact that of A, we’ve had a bully kharif crop, we person seen agrarian spending picking up, and B, this is besides the festival clip erstwhile typically radical thin to walk a batch connected gifts, connected products, connected household products. Based connected this, I judge depletion has picked up successful Q3. And arsenic depletion picks up, there’s usually a lawsuit of saying that concern besides increases.

Investment information is not readily available, but we tin look astatine the CMI database connected concern intentions. Between April and June, determination were hardly immoderate announcements due to the fact that the elections were going on. The backstage assemblage ever likes to hold and watch, irrespective of their perceptions of which authorities volition travel to power. But if you look from July 1 onwards till date, it has been amazingly high. If I comparison it with past year, determination are signs that investment, peculiarly backstage assemblage concern is picking up. I spot that arsenic a positive.

Finally, if we look astatine Central authorities expenditure, it was lagging chiefly due to the fact that of the election. Also, by that clip you person each the ministries together, you determine to propulsion guardant your projects. The information we get up to October shows that there’s not been excessively overmuch question compared to past year. So if you look astatine what has been the wide capex expenditure, Rs 11.1 lakh crore, and spot what percent — if I retrieve right, it’s a small little than 50 per cent has been spent. Compared to past year, it was astir 50 per cent. So truthful there’s been immoderate benignant of a lag erstwhile it comes to authorities expenditure connected superior connected projects.

Now this to my caput is thing which is going to change. I accidental this due to the fact that if you look astatine the benignant of determination the authorities has shown successful the past, based connected experience, it looks similar that volition beryllium precise overmuch adjacent to the Rs 11.1 lakh crore, which is expected to beryllium spent by March. This means our shortfall has been determination up to October and is thing we are precise assured volition beryllium made up. This is wherefore we deliberation maturation successful Q3 and Q4 would mean a small supra 7 per cent.

Looking astatine the maturation rates truthful far, averaging astatine 7 per cent successful Q3 and Q4, we would extremity up with astir 6.6 to 6.8 per cent, which I deliberation is reasonably tenable and shows unchangeable growth. This is inactive little than past year, truthful we should admit that our maturation number, compared with different economies, volition inactive beryllium impressive. But we are inactive little than the 8.2 per cent we got past year.

On effect of geopolitics connected growth

I talk astir geopolitical developments beyond politics. We speech of wars and invariably, the question is what happens to crude lipid prices? We saw it summation erstwhile the Ukraine warfare began. When the Israel-Hamas struggle started, we each expected crude lipid to emergence again to $120-130 per barrel. However, precise small happened. The satellite has adjusted to these geopolitical problems. So I spot geopolitics arsenic little of a risk. World Bank information estimation the crude lipid terms volition stay astatine $70-80 per tube for 2025. Going up to 2026, we’ll beryllium successful the aforesaid range. So I deliberation contiguous the planetary system is rather insulated from the authorities of these carnal battles that instrumentality place.

With this, erstwhile I talk of the different portion of the outer world, I deliberation determination is interest astir what volition hap erstwhile Donald Trump becomes the President of the USA. There was a batch of messaging astir the US predetermination restricting migrants oregon threats to enforce customs tariffs oregon lowering the firm taxation rate.

This would mean that US ostentation volition summation due to the fact that if it gets escaped of labour, I person to wage higher wages, which costs inflation. If I’m talking successful presumption of cutting firm taxation rate, the budget swells, higher borrowing, inflationary potential. I summation customized tariffs, automatically determination volition beryllium inflation. I spot this arsenic 1 large occupation which each countries are alert of. We don’t cognize however overmuch of this volition beryllium implemented, oregon to what grade India volition beryllium affected. But fixed the information that America is our large trading partner, this is simply a interest from the constituent of presumption of exports.

On the different hand, we cognize that erstwhile each this happens, China is not going to beryllium back. They’re going to effort and propulsion distant their ain exports. So however are they going to bash it? You’ll fto the currency depreciate, which they’re doing already. They volition springiness america stimulus. They volition effort and nutrient much goods and dump it successful different territories. This is the interest we person connected the commercialized front. So geopolitics done what happens successful the Western nations, successful particular, the US volition impact america connected the export and import fronts. On the currency side, we person already seen that the dollar has been strengthening astatine the disbursal of each different currencies. It is present near to the Central slope to determine what grade it volition spell and support the rupee. In doing so, the RBI volition request to instrumentality a telephone connected drafting connected its overseas reserves. This presents different conundrum.

Audience Questions

What led to a slower maturation successful the existent year?

In the existent year, the concern assemblage has under-performed. And wrong the concern sector, we person mining, manufacturing, and electricity, which were handicapped a precocious basal effect. Urban request came down. There was a festival effect which astir apt kept immoderate portion of the request down. So that is what contributed to dilatory maturation successful manufacturing. Otherwise, the services assemblage has been doing exceptionally well. That is rather contrary to what we person seen successful manufacturing.

Can argumentation heighten resilience to geopolitical challenges?

From the constituent of presumption of policy, we tin antagonistic the antagonistic interaction of what happens to currencies. This is wherever the RBI volition request to instrumentality proactive steps. A determination that has to beryllium taken is however to guarantee that the rupee does not descent down excessively much. I don’t deliberation monetary argumentation per se, that is the repo rate we’re talking of, is thing which volition assistance to antagonistic it. What could hap successful America is thing concerning carnal goods, which would beryllium impeded oregon go much costly if tariffs were imposed.