Moderation of Growth: Factors Responsible
STORIES, ANALYSES, EXPERT VIEWS
Concerns about a moderation of growth have been raised. Apart from normal volatility in growth, Prashant Jain (founder and CIO, 3P Investment Managers) writes “this could be a result of multiple factors. It is common knowledge that Indian household indebtedness has gone up….”
Household indebtedness: Debt-led consumption “merely shifts growth from future to present, and eventually payback time comes. Given the rising indebtedness of households, as also evident in rising retail NPAs, steps to slow the growth in personal loans are welcome and these are showing results. This could be one reason for a temporary slowdown in consumption, but this also sets the base for more sustainable growth in the future."
Continued strength of Chinese exports: The second factor that could be impacting growth, according to Jain “is the continued strength of Chinese exports. While China+1 is a favourable development, the results will be slow to come as a lot of work needs to be done before India can become a meaningful alternative. The Chinese manufacturing engine is firing well. The advantages of decades of large investments, policy support, great infrastructure, etc., that China enjoys will not make the going easy for India. Moreover, weakness in China’s domestic demand adds to its surplus capacity and is leading to deflation in export prices for merchandise goods, complicating things for Indian exporters."
Other temporary challenges: Jain points to other temporary challenges "like the rising US interest rates, the low yield gap between India and the US at around 2.2 per cent, the strength of the US dollar and a sharp fall in net FDI…..”
