India is the fastest-growing economy in Asia and the emerging markets. The rupee, which is one of Asia’s least volatile currencies due to its strong economic foundations, reflects this.
ICD interviewed Dhiraj Nim, FX Strategist and economist at ANZ Research, to find out what he expects from this budget, as well as his outlook for India’s growth in GDP and the Rupee. Excerpts:
Invezz – What is your expectation from the Budget?
I expect the government to lower its fiscal deficit goal from 5% of GDP to 4,9% and reduce net and gross borrowings. The fiscal boon due to the RBI excess dividends and tax growth will be used.
I anticipate that the capex goal will remain at INR 11,1 trillion, or 3,4% of GDP.
Increase the government’s revenue spending by 0.2-0.3% of GDP.
I would suggest that we focus our efforts on increasing output and employment of low-end, labour-intensive manufacturing as well as rural spending and subsidies to alleviate the rural poverty and pressures from inflation.
Increase consumption to boost growth
IMF’s revised economic forecast for India. What do you make of this? What should you focus on to achieve a faster growth rate?
We anticipate GDP growth to be 6.8% below IMF’s forecast, which is still a very strong number.
India’s high growth rate is the main reason for its appeal. We do see some uncertainties on the external demand, which can dampen growth momentum. Although private industrial capital expenditure is beginning to show signs of a revival, the lower growth projections factor in only a modest recovery.
In order to achieve higher growth, the consumption rate must increase, which will require a less unbalanced growth of jobs and earnings.
Citibank said recently that a growth rate of 7% isn’t enough to generate enough jobs in India for the coming decade. Since a long time, the country has seen a jobless increase. What does the government do wrong, or what is it not doing to solve this problem?
This is not a simple problem. A rural economic revival may help ease some of the pressure on unemployment this year. The pressure on low-end manufacturing, such as textiles and leather, could be caused by many things, such as a loss of global competitiveness. It is vital that these industries, which are labour-intensive, recover.
The growth in employment and income has favored the more skilled workers.
It is essential to invest in education and skills training that ensures both scale and quality. They have created great obstacles to India’s demographic advantage.
Rupee stability is not natural, but engineered
Invezz says the rupee held up well against the dollar in 2018. Your comments about its performance so far this year and your expectations for the remainder of the year.
Stability of the rupee is engineered, not natural. It is the RBI’s dual intervention of FX sales and absorption that has aided in this. This also supplements India’s solid fundamentals. The RBI has been able to accumulate large FX reserves and improve external stability metrics. This in turn ensures the rupee is competitive, especially as foreign currency flows have increased.
Exports and manufacturing both need to be competitive, particularly when currencies such as the yuan are highly competitive.
Do you believe the agreement to trade INR between India and the other countries will change the game for currency?
It’s a game of chance. Invoicing in the local currency can provide greater stability in times of dollar fluctuations. This also reduces the need for large FX reserve, which can be costly, as it may complicate domestic liquidity management when there are high levels of inflation.
The content of this post, Interview: Dhiraj Nim from ANZ Research on Uncertainty in External Demand Can Temper India’s Growth Momentum may change as new developments unfold
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