Key for India is to go through 2023-2024 without losing macroeconomic stability: Jahangir Aziz

I am taking a leaf out of the Economic Survey which is pegging the nominal FY24 GDP growth at 11% with real GDP at 6.5%. Is that a realistic number?
I think the context in terms of how we are looking at 2023-2024 is what will be the last six months of this fiscal year. If you just take the government’s own estimates or CSO’s own estimates that the year as a whole – 2022-2023 – is going to be 7%, we already had a 13.5% in the first quarter and a 6.3% in the second quarter.

So just by CSO’s and the government’s own estimates for this year, in the second half of this fiscal year the run rate of growth needs to fall to around 4%. We will be going into 2023-2024 fiscal year with the previous six months at a run rate of 4% and these are not our growth numbers estimates, these are the government’s growth numbers.

The government itself is saying that the run rate is going to slow to 4% in the second half of this year. Now, if you are going to think about 202-2024 and if you are saying that growth is going to be 6.5-7% and essentially you are saying that in six months, the 4% growth rate now needs to jump by about 200 bps for four straight quarters on average in the remaining four quarters. That is doable provided the global economy is going to support you.

Look at the global economy. US recession risks are fading in the near term but a US recession is still in play at the end of the year into 2024. China is reopening but the China reopening spill over this time is not going to be anything like 2010-2011 because this time around China’s growth is going to be powered by consumption and by services sector recovery which has very little linkages to the rest of the world.

The European recession has been taken out because natural gas prices have fallen but that is not really that strong a lift. Overall, the global economy in 2023-2024 is going to slow down. This is a very hard task to say that India is going to grow 200 bps faster from the second half of the current fiscal year and I am just going by government estimates when the global economy is actually going to slow down. It is going to be very difficult to get growth beyond 5%. I am adding 100 bps of improvement in the growth rate in 2023-2024 compared to the second half of the fiscal year.

India is still the fastest growing large economy. Tell us a little bit about your views and how growth is pegged to be in FY24 which the survey does highlight and the larger goal for India is eventually to become a $5 trillion economy. How quickly do you think we can get there?
The $5 trillion ambition is much more aspirational. It is good to be aspirational. It is good to have something to target but to make it to $5-trillion or whatever the size of the economy, it does not really matter to grow faster. The Indian economy needs to get through probably one of the most difficult periods coming ahead which is this year where we do not know how far the Fed will go. We think that the Fed is going to do one more rate hike and then they will do one more and that is when they are going to pause but the other central banks – both Bank of England, ECB and even Bank of Japan are lifting rates now. So the global financial conditions are not going to ease that much.

The only benefit that we have right now or the tailwind that we have right now is that the dollar is weakened and most likely the dollar is going to weaken. But I think the rest of the world is slowing, barring China. Again, China’s growth is not being driven by industry and infrastructure and so there is a lot of spill over to the rest of the world. It is going to be driven by services consumption and that does not have a lot of spill over into the world.

In the next 12-18 months, it is far more important for India to meet its $5 trillion target or whatever the target is, to actually survive 2023-2024 without losing macroeconomic stability and the key is going to be maintaining and preserving macro stability in a very difficult global environment and then making sure that once we go through this period, then we do things on the reform side and get to a faster growth trajectory.