Global slowdown: Will global risks and slower credit growth dampen India’s GDP outlook? Sonal Varma responds

“Therefore, our own estimate is 6.8% for GDP growth “Over the last two or three quarters we have seen a big variation between GDP growth and GVA growth. One is driven by the demand side, the other by the supply side. And we think GVA growth will continue to be much weaker than the GDP numbers,” he says. Sonal VarmaNomura.

The price is expected to drop to a five-quarter low. Do you think the price will go down? global slowdown Either way or even elections I’ve played a spoiled sport.
Sonal Varma: I don’t think the impact of the global slowdown will be the same. There are three different factors that I would say are playing a role. So our own expectation is that GDP growth will be around 6.8%. One of them is that really only adverse base effects are at play, which is more technical. There are two factors that we would call transitory that are affecting growth. One is the low spending related to the election because of the code of conduct. And the second is that there was a heat wave that dampened consumption in that particular quarter. But I think there are also some factors that may be more persistent and that are also reflected in this weaker number. One is the lower commodity prices, which was a big boost for companies in terms of high corporate profitability that is starting to reverse, so that will be reflected in this number.

And two, and this is something we think is going to develop further in the coming quarters, is a slowdown in credit growth We think this will impact the financial services sector GVA figure. So it’s a combination of many factors, some of them transitory and some not so transitory, so the key takeaway for us will be to what extent some of these trends extend beyond the first quarter.

What is the figure that you are working with and I ask this because while the ET Now poll is estimating a figure of 6.9%, there are estimates on the Street as low as 6% for the quarter as well and all this comes just a day after Moody’s actually raised the GDP forecast to 7.25%, although that is for the full year.
Sonal Varma: So our own estimate is for GDP growth of 6.8% and we have seen in the last two or three quarters a big variation between GDP growth and GVA growth. One is more on the demand side, the other on the supply side. And we think that GVA growth will continue to be much weaker than the GDP figures.

So, compared to GDP, our estimate for GVA growth is around 6.1%, but we would be surprised if the GDP figure were closer to 6%. I think that is something that GVA could achieve, but we think GDP should be closer to 7%.

And do you think that this is going to be resurrected in the next quarter as government spending starts to decline, or do you think that it will continue to be at the lower end and continue to weigh heavily on the GVA and GDP numbers?
Sonal Varma: In general terms, the transitory factors will of course be reversed. Thus, public spending will increase, heat waves will end and consumption should normalize. But the factors that, in our view, are a bit more long-lasting are the moderation of corporate profitability and consumer credit, which we believe will affect urban consumption demand and partly offset the recovery that we are seeing on the rural consumption side.

I think global factors are the biggest risk factor to watch over the next 6-12 months. We have seen some changes in the US employment situation. So far, it looks like a moderation rather than a major slowdown. US growthbut that could potentially be a risk that we need to monitor.

So our own assessment for fiscal year 2025 is that GDP growth is likely to moderate. We are looking at growth of around 6.9% for the full fiscal year 2025 and at the margin, I would say that like fiscal year 2025, we think the second half of fiscal year 2025 will be a bit softer as some of these more persistent components of growth start to play a bigger role.

What is the outlook or expectation regarding rural recoveryDo you think this is going in the right direction?
Sonal Varma: There is a visible improvement in the rural segments and we think that is largely due to the decline in inflation, which is helping to boost real rural incomes and of course the progress in the rainy season should help as well. That said, I think some of the more structural drivers of rural incomes historically, such as the recovery in rural job creation, the significant increase in land prices, factors that improve rural terms of trade, we don’t think some of those factors are in play right now. So the bottom line is that yes, there is a rural recovery, but it is still relatively subdued, I would say, compared to what we were used to over the last 10 years.

So what is the outlook in terms of GDP growth and how will we compare to some of the other emerging market economies?
Sonal Varma: You are right, as I mentioned, our projection for this financial year is 6.9% and for fiscal 2026 our projection right now is around 7%, although we do see some downside risk in that regard. I think in the global context of emerging markets, India still looks quite strong in terms of relative growth prospects, but I think it is also important in terms of macroeconomic fundamentals. So, if we see a soft landing in the US, that could be really positive for India in terms of an economy showing strong growth with strong fundamentals. So, it still looks good in relative terms, I would say, but in absolute terms some moderation is anticipated.