The global economy started 2023 on a slightly worried note. The US jobs growth has raised fears of continued hawkishness on the part of the US Federal Reserve while China is expected to provide a counter as a potential engine of growth as it abandons its zero COVID policy.
Chetan Ahya, Chief Asia Economist at Morgan Stanley, recently spoke with CNBC-TV18 about the current state of the Indian economy and an assessment of the trajectory of the Chinese, and Asian economies at large.
According to Ahya, India's fiscal deficit has been somewhat high in recent years. However, he noted that the reduction in fertiliser prices will help to reduce the subsidy burden on the government, and he expects the fiscal deficit to come down by 0.5 percent as a result.
“As you get to next financial year, you would have a lower burden on subsidy on account of fuel, food; the announcement of the food that the government made earlier, will reduce food subsidy burden in the next financial year and at the same time the fertiliser prices have come down so rapidly will mean that the fertiliser subsidy burden will also go down. So, they should be able to reduce the fiscal deficit by half a percentage point next year and stay on that gradual consolidation path,” he said.
Ahya also provided his outlook on India's economic growth. He expects India's growth to be around 6.2 percent, which is a natural slowdown due to softening exports. However, he does not see a reason for the domestic demand story of India to be hampered.
In terms of inflation, Ahya expects India's inflation to be in the range of 5-5.5 percent. If the US Federal Reserve (Fed) decides to hike interest rates further, Ahya believes that the Reserve Bank of India (RBI) might raise rates by another 25 basis points.
Overall, Ahya believes that while there are some challenges facing the Indian economy, the country's growth outlook remains positive, and the domestic demand story remains strong.
For more details, watch the accompanying video
First Published: Jan 6, 2023 1:55 PM IST