Rate Hike Impact | India economy: Rate hike will curtail supply-led inflation, help consuming economy like India: Vinit Bolinjkar

It is great to see this kind of an outperformance and I keep on pinching myself everyday to say that yes we are outperforming and we are going completely against the global grain. For an economy which is the fifth largest in the world and the market is the seventh or eighth largest, how long can this outperformance continue? One cannot be Teflon coated in the flat world?

I beg to differ with you on that and I believe that we are a fledgling economy given the size of our vast youthful population which is close to 50% of the total population. In contrast to the other economies like China, which has got a negative demographic trend in terms of consumption and historically what we have seen is that when countries are in their prime, they register double digit growth rates in their economies for years together. Examples are Thailand, China, South Korea and Japan.

In the heydays we have seen multiple years of high single digit and even double digit growth there. I believe that we are at that inflection point and we are here to stay and the growth is going to continue to play out and one of the stellar reasons is that during the unwinding of the trades when the markets were collapsing, a large part of the Indian corporates went light on leverage, repaid debt and cut costs. They have become lean and mean. Their balance sheets are very healthy and capex is absolutely modular. So it is opportunistic and modular and no one is taking large bets where their very sustenance is under question.

Another factor that we need to take into account is that the United Arab Emirates is looking to raise production at an accelerated rate because it is believed that high oil prices cannot sustain for very long and hence they are increasing output to maximise profits.

I completely agree with the broader picture. My question is centered around one simple instrument, interest rates. If the US Fed increases rates now – whether it is 100 or 75, 50 or 25 bps, interest rates are going to go higher. If interest rates go higher, India will have to increase interest rates, if India increases interest rates, stock market valuations will come down and it will start impacting internal demand. What is happening in the world surely will impact interest rates and will hit us directly or indirectly?

I beg to differ on that. As I said, we are structurally more sound and the economy can handle higher rates.

It is not really going to cut back on consumption because consumption is already impacted because of the late rainfall as well as the sickness of the cattle in rural India. Surprisingly despite all these events like the European war and hyper inflation, we have been very resilient because our economy is extremely strong. When you add export impetus, Aatmanirbhar India and PLI, it is creating a very strong network effect. When we start doing 20% ethanol consumption, our forex reserve would not deplete that significantly and all this is playing out to the fact that the rupee is now becoming more of a reserve currency.

India is pushing the rupee everywhere so that dollar demand for the rupee will not be to that extent significant and because of all these reasons, the rupee will be resilient. Yes interest rates are going to go up undoubtedly but if the interest rates do not go up, then our currency will depreciate and our exports will pick up. All in all, it is a very positive sentiment. If the interest rates rise globally, the supply-led inflation will curtail, which is very good for a consuming economy like India.