World Bank's Senior Economist Dhruv Sharma On India
#WorldBank retained it's FY24 India growth forecast at 6.3% but raised inflation estimate to 5.9% from 5.2%.
#NDTV's Priyanshi Sharma speaks to World Bank's Senior Economist (India) Dhruv Sharma about the report he authored 'India Development Update'. #BQLive
#NDTV's Priyanshi Sharma speaks to World Bank's Senior Economist (India) Dhruv Sharma about the report he authored 'India Development Update'. #BQLive
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00:00 has released its India development update, which explores where the Indian economy is
00:04 going, what's the forecast for the Indian economy for this year on the growth front,
00:08 on the inflation front, and what are the challenges.
00:10 To help us understand all that and more, we're joined by Mr. Dhruv Sharma, who has authored
00:15 this report.
00:16 Thanks very much, Mr. Sharma, for joining us.
00:17 I want to ask you first that, just give us a glimpse of what the Indian economy outlook
00:24 looks like, both on the growth front and the inflation front for this year.
00:27 Sure.
00:28 Thank you for having me.
00:29 So, let me start with the growth forecast.
00:31 Our expectation is that growth will moderate to 6.3% this fiscal year and moderate relative
00:38 to where it was last year.
00:40 Having said that, we're expecting robust investment activity.
00:43 We're expecting the services sector to also be robust.
00:47 So that moderation comes in a context of a challenging global environment, and an environment
00:55 that is still faced with elevated inflation, monetary policy around the world as well.
01:01 We see rates higher than they were a couple of years ago.
01:06 So in light of all of that, the moderation is actually a result of some of the base effects
01:10 that we saw over the course of last year, way in a way.
01:14 But still robust and still expected to be one of the fastest growing economies in the
01:18 world.
01:19 That's fantastic.
01:20 But the last year has been particularly challenging.
01:23 The last couple of years, in fact, ever since 2020, first you had the pandemic, then you
01:27 had another wave, and then you had yet another wave, and then you had the Ukraine-Russia
01:30 war.
01:31 All these reasons have really hurt the Indian economy and the global economy at large.
01:35 Do you think we have, just talking about India here, do you think we have overcome those
01:41 challenges that were posed by the pandemic and then the Ukraine-Russia war?
01:45 Do you think we are over the costs that these challenges posed for the Indian economy?
01:51 So over the past 10, 15 years, India's economy has developed a certain level of resilience.
02:00 It is better placed than it was several years ago to weather some of the global developments
02:06 that you've just mentioned.
02:09 Macro stability is better than it was several years ago as well.
02:12 We've seen India build up its economic buffers.
02:17 It has large foreign exchange reserves.
02:19 Its financial sector is healthier than it was.
02:23 We are seeing FDI still, foreign direct investment still remain small, but increasing over the
02:29 past few years as well.
02:31 And we see policy decisions such as having an inflation targeting framework, insolvency,
02:37 bankruptcy code, all introduced with a view to helping India navigate some of these challenges.
02:43 So all these challenges and developments that you mentioned, I think India is better placed
02:47 to navigate those.
02:48 And if it's a question about are we over the worst of it, look, global challenges are
02:53 still there, but India's better placed than it was to weather those now.
02:59 Now, one big worry that was posed after these global challenges is the possibility of a
03:04 recession, a global recession that was talked about in the United States did enter a technical
03:09 recession after slowing down of the economy for two consecutive quarters, so did the UK.
03:14 But tell us whether that fear of a recession is over.
03:18 And a lot of top economists had said that India would be immune from any such recession
03:23 fear, at least for now, because as you mentioned, that India was better placed compared to some
03:28 other countries.
03:29 So do you think those recession fears are over for now, at least?
03:33 So look, we're seeing challenges in several parts of the world.
03:36 We're seeing some strength in the US economy.
03:40 It's still there.
03:41 We're seeing some weaknesses in Europe.
03:46 And we're seeing some weaknesses, of course, in China as well.
03:49 So to the extent these affect India, yes, India is not completely immune.
03:55 But as I said before, India is better placed to weather those.
03:57 So if there is a reduction in, if growth eases in Europe, China, some of the bigger economies,
04:05 we will see some effect on India.
04:07 But our forecasts, our projections have taken those into account, which is why we settled
04:13 on 6.3.
04:14 And I'll just note that our forecasts are unchanged from where they were six months
04:18 ago as well.
04:19 Yeah.
04:20 So coming to your forecast, the growth forecast has been unchanged for the last six months
04:24 at 6.3%.
04:26 But if you talk about the inflation forecast, it was 5.2%, if my memory serves me right,
04:32 six months ago.
04:33 And now it's at 5.9%, according to the report you've released today.
04:38 So the reasons behind that rise, are those the predictable vegetable price rise, which
04:44 we saw over the last couple of months?
04:46 Is it just that?
04:47 And do you think that this higher inflation, I mean, we've always learned in economics
04:53 that when there's high inflation, it does impact growth also, because it affects your
04:57 demand, it affects your consumption.
04:59 But when we're expecting a 0.7 percentage point higher inflation, your growth forecast
05:04 is the same.
05:05 So are you saying that that rise in inflation is not impacting growth?
05:09 That's a very good question.
05:10 Look, when we think about India's growth, a large part of that is underpinned by, you
05:18 know, India's GDP is composed a large part by consumption.
05:22 So consumption is the largest chunk, and then you have investment, and then a small part,
05:27 which is the external sector.
05:28 So where are inflation forecasts play into growth?
05:36 We're expecting some moderation in consumption.
05:40 We're expecting consumption to moderate over the next fiscal year, and then maybe stabilize
05:46 around 6, 6.5% growth.
05:49 Overall conditions, and of course, inflation is part of those overall conditions, are still
05:55 quite attractive in India, and they're still conducive for growth.
05:57 So that what is driving growth is really strength in investment.
06:02 And you know, we've seen that strength underpinned by the government's commitment to capital
06:09 expenditure, infrastructure investment.
06:11 So while yes, overall, our forecasts have not been, have not changed as a result of
06:18 our change in inflation forecasts.
06:21 The composition of what is driving growth has changed slightly.
06:26 So that's where you see them.
06:27 That's interesting.
06:28 And when we talk about the composition of what's driving growth, one sector that's mentioned
06:32 is the service sector, which is performing fairly well.
06:35 But the other sector, which is very important for any economy, especially a developing economy
06:40 like India is the manufacturing sector, because that's the labor intensive sector where you
06:44 want to create jobs.
06:45 But we've seen just today, the S&P Global report came out, which said that the manufacturing
06:51 PMI is at a five month low.
06:53 And even in the GDP figures, we are seeing that the manufacturing growth is, if I can
06:58 put it that way, it is struggling a bit.
07:00 So would you say that?
07:02 Would you agree with that?
07:03 And do you think the manufacturing sector is a pain point for the economy?
07:06 So I agree that manufacturing is, manufacturing, the manufacturing sector is critical.
07:11 Now, the weaknesses that are being seen, perhaps in India's maybe perhaps in some of the recent
07:18 numbers are also a reflection of what is going on globally.
07:22 There is a slowdown in major trading partner growth.
07:27 Having said that, as you rightly pointed out, some of that has been offset by strength in
07:31 the services sector.
07:32 So we're seeing that again, play out in the numbers.
07:36 So to the extent that India is, you know, what's going on in manufacturing is being
07:40 reflected in global, in the global cycle.
07:43 That's what we're seeing play out here.
07:44 It's something to watch out for, as you said, you know, for job creation, it's an important
07:50 sector.
07:51 I don't think at this stage, there's anything to be very, very alarmed about.
07:55 That's that's good news then.
07:57 But there is a lot to improve on for sure.
08:00 But now I want to read out something that the World Bank came out with just a few days
08:03 ago that it cut its forecast for China's growth next year, and warned that East Asia's developing
08:08 economies are set to expand at one of the lowest rates in five decades.
08:13 So that's about South Asia.
08:14 Where do you think India is placed here?
08:16 Where do you think India compares with its peers in terms of both growth and inflation?
08:22 So I can comment on the India part.
08:25 As I said, India is still expected to be one of the fastest growing economies in the world.
08:30 So to grow at 6.3, when you have significant global challenges, significant regional challenges
08:36 is something worth noting.
08:39 Inflation in many parts of the world last year, we saw very high inflation.
08:45 India also had inflation numbers that were above the central bank's comfort range.
08:52 We're expecting our forecast for a moderation.
08:55 So yes, we've got inflation coming down into the comfort range this year and then go closer
08:59 to the center of that range.
09:01 So where, you know, where it places India regionally and globally, strength in growth
09:07 and inflation that is expected to be, you know, well within the comfort range that the
09:14 central bank has.
09:16 So India is better placed than some of its peers.
09:18 Would you say that?
09:19 Yes.
09:20 Right.
09:21 And one of my last questions about debt, the debt crisis was mentioned in your presentation
09:27 and also the South Asia development update.
09:32 One question that's been pressing for a while now is that whether India can go the Pakistan
09:36 or the Sri Lanka way.
09:37 And there's been a lot to say that our macroeconomic indicators and our financials are a lot different
09:42 from these countries.
09:44 What would you say about that question?
09:46 So I won't comment on Sri Lanka and Pakistan, but I can tell you that, sure, India's debt
09:50 to GDP ratio is higher than it was a few years ago.
09:55 You know, it reached just below 90 percent.
09:58 It was about 87 percent a couple of years ago.
10:02 It's now down closer to the mid 80s.
10:04 We're expecting it to come down to around 82 and a half percent.
10:08 So from a sustainability perspective, we're not concerned.
10:13 And while it is high, like I said, what matters here is sustainability.
10:17 And more broadly speaking, we're expecting the commitment to fiscal consolidation to
10:21 remain over the course of the next couple of years.
10:24 We saw that commitment last year and the year before as well, and we're expecting that to
10:28 remain unchanged.
10:30 So you think that the reasons that led to the economic crisis in these two countries,
10:34 those reasons are not the same for India?
10:36 I think they're very different.
10:37 India is very differently positioned in those two countries.
10:42 Right.
10:43 Now, I want to ask you about, I mean, when we speak about comparing India with other
10:50 countries, we also have to highlight the point about income inequality, which we have highlighted.
10:56 But on the other side, we also speak about how investments can drive growth and how that
11:01 can have a trickle down effect.
11:03 And the report that you've presented that talks about FDIs and that says that while
11:08 FDIs are resilient, but they're still below the pre-pandemic level.
11:11 So tell us something about why you call FDIs resilient and what do you think needs to be
11:18 done from a policy point of view or from the government to get the FDIs back to a pre-pandemic
11:24 level?
11:25 So it's an important point you make about how investment drives growth.
11:31 And foreign direct investment, FDI, is also an important part of India's growth story.
11:38 So the important part to note here is that they're adequately financing the current account.
11:46 India's FDI as a share of GDP is relatively low, but the overall trajectory over the last
11:52 several years has been upwards.
11:55 So while it's still below where it was a few years ago, that's largely a reflection of
12:01 challenges everywhere in the global economy.
12:07 Various points through last year, we saw foreign portfolio outflows, we saw capital flight,
12:14 but then now coming back to the resilient part, we saw a return of capital into India
12:20 relatively soon.
12:21 So if you compare the volatility we saw last year to volatility in previous periods, for
12:27 example, in 2013 with the taper tantrum, 2018 and other periods, in those periods capital
12:35 left India and it took a while to come back.
12:38 Last year we saw capital leave and come back relatively quickly.
12:41 Again, this points to two things.
12:44 It points to the buffers that India has built, it points to the macro stability being a core
12:52 part of the government's economic policy focus, and it points to investor confidence in the
12:57 Indian economy as well.
12:58 Right.
12:59 So a lot of positives to look at, but definitely some challenges.
13:01 There are challenges there, but positives too.
13:05 Do you want to talk about some of those?
13:06 I mean, the government has a policy where they've tried for many years and they're focusing
13:12 on these things.
13:13 I'm going to point to just two things.
13:17 Infrastructure investment.
13:19 This is a story that we're all very familiar with and the government's committed to that.
13:25 There is some evidence that increasing investment in infrastructure actually crowds in private
13:30 sector investment.
13:31 So we're hoping to see some of that over the course of the next few years.
13:35 And when it comes to attracting more foreign direct investment, look, the government has
13:41 done several things, including improving the business environment.
13:46 There's a focus on bringing down logistics costs in India, which will of course make
13:51 the business environment even better.
13:53 So all of these things are policies that we would encourage the government to continue
13:58 to do so and not lose sight of the importance of FDI, the importance of continuing infrastructure,
14:09 not only just for a couple of years, but over a longer period of time.
14:14 Right.
14:15 Thanks very much, Mr. Dhruv Sharma, for speaking to NDTV.
14:17 And as has been said, but it is important to highlight here that while India is a bright
14:23 spot as the IMF has put it, there are several challenges and there are several aspects to
14:27 work on for India to be able to grow better and for the Indian economic growth to be more
14:33 equitable for the entire country.
14:42 [CLICK]