India's Growth Story Continues To Pose Optimism Despite Geopolitical Uncertainties, Domestic Precariousness: PHDCCI President

Amidst a host of geopolitical uncertainties and domestic precariousness, India's growth story continues to pose optimism. Sanjeev Agrawal, President, Industry body PHD Chamber of Commerce and Industry (PHDCCI), has exhuded confidence that the government's and the RBI's prudent actions will pay off, and Indian economy will continue to display strength and resilience.

PHDCCI President Sanjeev Agrawal in an exclusive Q&A with Reema Sharma of Zee Media, has shared his views extensively on the impact of Israel-Hamas conflict on Indian economy, RBI's interest rate decision and more.

Excerpts...

 

Q1.  IMF has already said Israel war can bring down global growth numbers. How do you see the war impacting the Indian economy?

India's significant dependence on oil imports renders it susceptible to disruptions in the global oil supply chain, potentially arising from an extended conflict in the Middle East. The escalation in Brent crude prices since the war's onset holds the potential to induce inflationary pressures.Given that elevated energy costs often trigger a chain reaction of higher prices for goods and services, thereby eroding the purchasing power of the Indian rupee and intensifying inflationary challenges, thus dampen the central bank's efforts to uphold price stability amidst heightened inflation and external economic uncertainties. In addition, the Indian rupee may experience depreciation, rendering imports more costly and impacting the nation's trade balance, which, in turn, could threaten the overall economic stability of India.

 

Q2. In its recent bi-monthly monetary policy, the RBI kept interest rates unchanged for the fourth time. Please analyse it from the point of view of growth and inflation.

The RBI kept interest rates unchanged for the fourth time at 6.5%. Though inflation has cooled down partly, the unchanged repo rate is expected tosoften the inflation rate further bringing it within the target of 4%. The stable repo rate will boost economic activity and strengthen.The central bank's cautious approach ensures that there is no complacency in this regard. Keeping interest rates unchanged is a signal that the RBI intends to maintain its commitment to price stability.

In this context, an unchanged repo rate is expected to bolster economic activity by providing a favorable environment for borrowing and investments. It can stimulate consumption and investment demand, supporting the broader goals of economic growth and employment generation.The RBI's decision to maintain the status quo on interest rates reflects a delicate balancing act. The approach underscores the central bank's commitment to achieving its twin objectives of price stability and sustainable economic growth.

Q3.Will Festive Demand becomes the catalyst to boost Indian Economy amidst persisting Inflationary pressures?

The festive season in India has historically been a time of heightened consumption and increased investment, contributing to a surge in overall demand. Urban areas particularly witness a robust increase in demand around festive occasions. It is anticipated that the upcoming festive season will see a revival in sales, thereby providing a much-needed boost to consumption demand. While urban demand is expected to remain strong, there are indications of economic distress in rural regions, as rural demand is still in recovery mode.  Whether festive demand can serve as a catalyst to stimulate the Indian economy amid the persistence of inflationary pressures depends on several factors, including the degree of inflation control, the management of supply chain disruptions, consumer sentiment, and government policies. Effective management of these elements will be essential to ensure that festive demand effectively supports economic growth while keeping inflation in check.  Prudent measures by the RBI and Government will prove to be fruitful and it can be expected that it will be happy festive season for the India’s economy.