India’s economic outlook

With an impending global economic slowdown, it is unlikely that India will remain insulated from these developments. The good news is that recent data suggest some signs of easing headwinds. Global inflation may have peaked, partially because of the high base effect. This would mean the US Fed may not raise rates as aggressively as it did last year. The USD index is declining, while crude oil prices have remained steady but at high levels.

For India, easing headwinds will be critical as global exigencies are the primary factors that weigh on the economy’s outlook. Growth is expected to remain relatively strong, but not as high as perceived earlier. Relatively higher oil prices, a stronger US dollar (USD), and supply chain interruptions in certain industries will keep prices above the RBI’s comfort level. As the growth-inflation dynamics will continue to evolve, there will be expectations that the government steps in to strike the right balance in managing the two objectives. The government must take advantage of some global headwinds that have played to India’s advantage. We have highlighted a few of our expectations from the budget as we believe a few of these measures will help India deal with challenges better and the path to recovery will be lengthier but resilient.