Less than five quarters of what you want. Do you think that the global slowdown in any way or even the election has played a destructive sport.
Sonal Varma: I do not impact the global slowdown. There are three different factors I would say that play a role. So, our own expectation is GDP growth of around 6.8%. One of the only negative base effects is more technical. There are two that we will call transitory factors that weigh on growth. One of them is the low cost of elections due to the code of conduct. And secondly, there is a true heatwave and that does not dampen consumption in a certain quarter. One of them is lower commodity prices which is a big tailwind for the company in terms of high corporate profits which are starting to reverse, so it will be reflected in the numbers.
And two and this is something that we think will play out more in the coming quarters is the slowdown in credit growth which we think will weigh on the GVA number for the financial services sector. So it’s a mix of a lot of factors, I’d say some transitory, some not so transitory and the main takeaway for us is really going to be whether some of these trends will extend beyond Q1.
What figure are you using and I’m asking because when the ET Now poll was drawn at 6.9%, there was a forecast on the way up to 6% for the quarter as well and all of this is just coming up. a day after Moody’s actually boosted its GDP forecast to 7.25% even though it was for the full year.
Sonal Varma: So, our own estimate is 6.8% for GDP growth and we have seen in the last two-three quarters there is a big difference between GDP growth and GVA growth. One is from the demand side, the other is from the supply side. And we think that GVA growth will continue to be softer than GDP numbers.
So, compared to the GDP number, the GVA growth estimate is around 6.1%, but we would be surprised if the GDP number is closer to 6%. I think that GVA is possible, but GDP we think should be closer to 7%.
And do you know if that’s going to turn around in the next quarter as government spending starts to pull back or do you think it’s going to continue to be on the lower side and continue to weigh on GVA and GDP numbers?
Sonal Varma: In general, transitory factors will always reverse. So, government spending will increase, the heat wave will end, so consumption should be normal. But the longer-term factors in our view are the moderation in corporate profitability, the moderation in consumer credit that we think will weigh on the needs of urban consumption and partially offset the revival that we see on the rural consumption side. .
Global factors I think are the biggest risk factors to watch over the next 6 to 12 months. We’ve seen some shake-up in the U.S. workforce situation. It still looks like a moderate rather than a big slowdown in US growth, but there may be risks to monitor.
So, our own assessment for FY25 is that GDP growth is likely to moderate. We are looking at around 6.9% for the full financial year FY25 and in the margin I would say like FY25, the second half of FY25 we think will be a little softer because some of the more persistent growth components are starting to play a bigger role.
What is the prospect or hope when it comes to village recovery? Do you think it is on track?
Sonal Varma: There is a visible improvement in the rural sector and we think that it is mainly due to the decline in inflation which helps to boost real rural income and of course the progress in the monsoon should help as well. That said, I think some of the most structural drivers of rural income historically like the revival in the creation of rural projects, a significant increase in land prices, factors that raise the requirements of rural trade, we do not think some factors are in play as of now. So, the bottom line is yes, there is a rural recovery but it’s still quite a bit, I would say compared to what we were used to 10 years ago.
Are the expectations going down in terms of the GDP growth mold and how do we stack up against some of the other emerging market economies?
Sonal Varma: You are right, as I said, the projection for this financial year is 6.9% and for FY26, the projection at this stage is around 7% although we see some downside risks. I think in the global EM context India still looks quite strong in terms of relative growth prospects, but I think it is also important in terms of macro fundamentals. So, if we see the US landing, then it could be positive for India in terms of the economy showing strong growth with strong fundamentals. So, it still looks good on a relative basis I would say, but on an absolute basis some moderation is on the cards.
