'We've not suffered from the global slowdown,' says CEA V. Anantha Nageswaran

Chief Economic Adviser V. Anantha Nageswaran believes a simple recession or slowdown around the world, on balance, will not be a bad thing for India, which has till now remained largely unscathed by global economic developments. In an interview to Business Today, he says that while weak merchandise export growth is not a surprise, services exports remain resilient. Edited excerpts:

How do you see the Indian economy performing amidst the global economic slowdown?

The global slowdown is not so big an issue for India. Even last year, the global economy was beginning to slow down… commodity prices went up, interest rates went up, while merchandise exports growth in India stagnated. But we achieved a 7.2 per cent real GDP growth in FY23 and I have said many times that this will eventually be revised higher when the final numbers come out in January or February 2026. The point is we have not suffered from the global slowdown, even though export growth might have been hit. This year too, merchandise exports are struggling, which isn’t surprising given the state of global demand... But services sector growth is quite resilient. There always seems to be demand for Indian IT exports or global capability centre exports. Overall, I would even argue that a global slow down—to the extent that it puts a lid on commodity prices and on interest rate increases—is a good thing for us on balance. However, that is the case only as long as it is not a very deep and prolonged recession accompanied by a financial sector stress. A simple garden variety recession or slowdown in developed economies or economies around the world, on balance, will be actually not a bad thing for us.

What are the big challenges and the big advantages for the economy? 

We are already about five months along the way this fiscal. We have to see if monsoon rains do not pick up in September, then how much of an impact it has on food production and inflation... the central bank’s response to that will be important to watch. The second factor to watch will be global financial conditions. If stock prices around the world go into a steady decline, it will have knock-on effects on emerging market stocks, including India. But I am encouraged by the fact that private sector capital formation has begun to happen, which is a good buffer against these two risks.

Will you revisit the GDP growth forecast for the fiscal? 

At the moment, we are comfortable with 6.5 per cent. And we don’t see downside risks arising. In May, we said the risks are evenly distributed on both sides of 6.5 per cent whereas in January, when we wrote the Economic Survey, we said 6.5 per cent, but downside risks dominated.

What are your views on the recent surge in inflation? 

It has come back in the last several weeks primarily because of food prices. But core inflation has been very well-behaved and some of the food prices that went up are on the retreat. We are keeping an eye on energy prices; we are keeping an eye on food prices. Both the central bank and the government are taking measures within their remit to address these. The quarterly inflation projections released by the Reserve Bank of India for the rest of the year in early August are quite realistic. I don’t see a major inflation problem. If anything, the inflation rate on average this year will be lower than last year.

But are there concerns about cereals and pulses going forward because of the rains being lower? 

There will be some items, the prices of which always go up. It’s a question of managing their increase through supply side measures which the government is doing... the fact is we have good inventories of grains and sowing has not been bad. We will wait and see for the next one month what kind of rains we get. While there are questions and we need to be proactive, I don’t see this as a very big concern.

There is a concern about the monsoon—the rain deficit in August may impact rural demand. What is your view? 

There are compensating factors as well. I am aware of these concerns, but we had good rains in June-July; the reservoir levels are quite alright and there is still some more time left for the monsoon to play out. The construction sector is doing well and therefore that absorbs labour and leads to remittances into rural India. MGNREGA demand is lower and falling compared to previous years. And private sector capital formation has begun to take off; that creates downstream demand for workers.

You mentioned private sector capital formation. When do you see a full-fledged recovery? 

It is not just in some sectors... We have access to bottom-up data and 20 of 24 sectors have seen an increase in capex (capital expenditure) in FY23 compared to FY22. The RBI’s private sector investment intentions, part of the August monthly bulletin, also reflects this... [it] is no longer a case of concentration of a few sectors driving the capital formation. It is well rounded.

The government has stepped up capex. But there are concerns that it will reduce this closer to the general elections... 

There is nothing in the data [or] the government’s plans to indicate that the emphasis on capex will be diluted. In the first four months of FY24, capex has been ramped up and state governments and the private sector are also getting into the act.

There is talk about India turning into the third-largest economy yet its per capita income being very low. Your thoughts? 

What is novel in this argument? According to the World Bank classification, we are a lower middle income economy. And over time, we will become a middle income country... Everybody is aware of the numerator, which is GDP, and the denominator, which is the number of people in the country... I don’t see the merits of these alternative points of view being raised because everybody knows that... And yes, in per capita terms, we have a lot of room to catch up. And that is what gives us the upside.