India: growth at the crossroads
India's growth is heavily dependent on how soon the RBI can stabilize the rupee
and roll back its July 15/23 tightening. We expect June quarter growth to come in
at 4.7% (consensus 4.6%) on Friday, in line with the 4.8% recorded for the March
quarter. If the RBI persists with tightening into the October-March busy industrial
season, we estimate FY14 growth could drop to 4.8% from 5.3% earlier.
Growth turns on RBI FX policy
India's growth depends on RBI's FX policy. If the RBI is able to rescind its July
15/23 tightening before the October-March busy season, we estimate FY14
growth could recover to 5.3%, on good rains, from 5% last year. We peg the
FY15 growth at 6.3% in that case.
If it persists with tightening into the busy season, we estimate growth could drop
to 4.8% as bank lending rate hikes would eat away the benefits of a better
autumn crop on good rains. We estimate FY15 growth would also be lower at
5.5%. Hence we welcome the RBI’s decision to partially dilute the 15 July
tightening measures by resuming OMO purchases of Rs80bn of gilt. Do read our
last growth report here.
We have broken down India's recent growth slowdown into 4 factors: global
factors (150bp); RBI tightening (75bp); capex slowdown (50bp); and poor rains
(25bp). We do not expect global growth or even India's capex cycle to turn
around. In case lending rates go up rather than coming off, growth should slip
below the 5% level.
June quarter to clock 4.7% on Friday
We expect June quarter growth to come in at 4.7% (consensus 4.6%) on Friday,
in line with the 4.8% growth seen in the March quarter (Chart 1). The benefit of a
good crop will likely largely be offset by industrial contraction on high lending
rates. The only consolation is that India's growth path is no worse than Brazil's or
Russia's.
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India's growth is heavily dependent on how soon the RBI can stabilize the rupee
and roll back its July 15/23 tightening. We expect June quarter growth to come in
at 4.7% (consensus 4.6%) on Friday, in line with the 4.8% recorded for the March
quarter. If the RBI persists with tightening into the October-March busy industrial
season, we estimate FY14 growth could drop to 4.8% from 5.3% earlier.
Growth turns on RBI FX policy
India's growth depends on RBI's FX policy. If the RBI is able to rescind its July
15/23 tightening before the October-March busy season, we estimate FY14
growth could recover to 5.3%, on good rains, from 5% last year. We peg the
FY15 growth at 6.3% in that case.
If it persists with tightening into the busy season, we estimate growth could drop
to 4.8% as bank lending rate hikes would eat away the benefits of a better
autumn crop on good rains. We estimate FY15 growth would also be lower at
5.5%. Hence we welcome the RBI’s decision to partially dilute the 15 July
tightening measures by resuming OMO purchases of Rs80bn of gilt. Do read our
last growth report here.
We have broken down India's recent growth slowdown into 4 factors: global
factors (150bp); RBI tightening (75bp); capex slowdown (50bp); and poor rains
(25bp). We do not expect global growth or even India's capex cycle to turn
around. In case lending rates go up rather than coming off, growth should slip
below the 5% level.
June quarter to clock 4.7% on Friday
We expect June quarter growth to come in at 4.7% (consensus 4.6%) on Friday,
in line with the 4.8% growth seen in the March quarter (Chart 1). The benefit of a
good crop will likely largely be offset by industrial contraction on high lending
rates. The only consolation is that India's growth path is no worse than Brazil's or
Russia's.
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