Saturday, June 15, 2024

Indian Economy’s Goldilocks Phase-UBS Securities

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The Indian economy is in a Goldilocks phase according to the UBS securities. The agency believes that the Indian economy is likely to grow by 7% in this fiscal year.

UBS Insights-

Tanvee, Gupta Jain, Chief Economist at USB, attended a webinar on “Post-Election Indian Economy: Mapping India’s Growth Path.” She said that the Indian economy is likely to maintain its potential growth rate of 6.5-7% y-o-y basis between FY26-30.

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She added that this growth rate may even get higher than 7%  considering the push in manufacturing sector and other hard reforms. However she also added that while political stability should help ensure continuity in policy agenda. She sees risk of populist bias in the third term (targeted towards lower- income strata). She believes this might lead to changes in economic policy dynamics with tougher reforms getting pushed further out.

Jain said, “We continue to expect a government push towards supply-side reforms including boost to manufacturing, labour law implementation, skill development and creating employment opportunities (especially blue-collar jobs in low-skilled labour-intensive manufacturing) amongst others.” However, she also added that implementation of tough reforms like UCC, farm laws, one nation one election might be challenging.

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She although reiterated the fact implementation of such reforms is crucial and it will help India grow higher than 7%. Commenting on the Union Budget announcement, UBS believes that the government will adhere to the medium term fiscal consolidation but with a populist bias.

UBS highlighted that overall India’s growth will continue to remain resilient. However, there seems to be a contradiction between actual GDP growth (which is keeping steady) and household spending growth (which has been declining since the Pandemic). Jain reportedly stated, “India is seeing a K-shaped consumption recovery with affluent and premium segment demand seemingly doing well, and demand for entry-level and mass-market goods has remained muted post the pandemic.” Towards the end to broaden growth prospects she suggested the use of broad based capex cycle to increase employability.

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