The global and Indian economy is being reshaped constantly by frequent geopolitical shockwaves. Recurring disruptions due to external factors such as commodity inflation, all-time-high crude oil prices, the Ukraine-Russia war, supply-chain disruptions, rupee devaluation and interest-rate hikes demand greater economic resiliency.
India, being the fastest-growing economy, must take economic decisions based on prevailing financial, environmental, and geopolitical conditions. Today, the global economy is facing major sluggishness as adverse events unfold.
The performance of the Indian economy after weathering pandemic-induced economic shocks has been better than other power economies. The unscheduled interest rate hike by the Reserve Bank of India indicates a fierce intent to control escalating inflation.
The fiscal stimulus in the form of duty relief for imports, fuels, steel, plastic products, and edible oil was well-timed to contain inflation. The Government of India intervened to take course corrective measures to protect consumer and economic interests. This fiscal move by the government should make the central bank tread cautiously on monetary intervention as any further policy action will slow down India’s GDP growth velocity. A balanced solution to deal with this complex situation is the ideal choice in such testing times.
Any further tightening of liquidity supply by the RBI may have an undesired impact on business and consumer sentiments, and could prove detrimental to consumption and capital expenditure, which fuels demand sentiment. In such a dynamic economic equation, propelling any structural policy reforms at full throttle could have undesired results. Hence, it is important to be prudent.
Disinvestment of public sector enterprises to finance the government’s capex target, remains the most crucial agenda and needs a calibrated approach, as the Indian economy is witnessing a K shaped recovery.
Challenges galore
The Indian real estate and construction sector has a multiplier effect on nearly 270 ancillary industries, and it is one of the largest employment generators. However, the sector is grappling with some persisting challenges, such as last-mile funding, long-term credit, rise in input costs, and GST without input tax credit.
Until now, developers have had to bear the brunt of inflation-driven cost hikes of nearly 15-20% and operate with their profit margins squeezed. Now, with economic tailwinds, it is imperative for developers to pass on the enhanced cost burden to end users, to ensure project viability. Home unit prices are poised to grow by 10-12% in the ensuing financial year, with the market observing trends such as consolidation, debt refinancing via IPOs, M&A, PEs, and REITs as companies look to survive.
The recent marginal rise in home-loan interest rates will affect buyer sentiment, and in turn, consumption velocity, at least in the short run. The real challenge is crude oil and inflation, which has impacted household consumption budgets, and dented discretionary spending by the consumer. Once geopolitical tensions ease, especially in Ukraine, economies are expected to see a revival and focus on growth.
Amidst all the economic disorder, safeguarding consumer interest is imperative for growth sustenance. A demand crater can trigger an economic loss. Therefore, a cohesive approach by the Government and RBI is the need of the hour. Industry will be watchful to gauge the impact of the Government's fiscal interventions to curtail inflation and expect the RBI to hold the prevailing interest rate, not shock the market with further hikes.
Any further hardening of interest rates could lead to slow economic growth and multifold challenges. I hope the authorities take a holistic view and look at solutions from a macro perspective. India needs its regulatory authorities to see how global economies have fared after their Central Banks increased its interest rates and chart its moves accordingly.
An economic revival has to be nurtured judiciously to boost consumer sentiment, advance investments, as well as macro-economic business prospects. The prediction of a normal monsoon will lift agricultural projections, even as capacity utilisation is restored to normalcy gradually amid persisting supply chain bottlenecks.
The path to further growth will be governed by streamlining supply side economics, calibrated monetary discipline to tame headline inflation, timely fiscal measures to bolster growth velocity, demand stimulation, disinvestment, and an increase in capital expenditure. This will help the Indian economy attain sustainable and balanced growth with a cautious fiscal deficit target and inclusive job creation.
Dr Niranjan Hiranandani is Vice Chairman, NAREDCO, and MD, Hiranandani Group
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
