Global Slowdown Signals India’s Growth Dip – Says Jahangir Aziz

According to Jahangir Aziz, head of emerging market economics at JP Morgan, the Indian economy may experience a slowdown in the second half of the year due to a global economic slowdown. However, he believes that this particular slowdown is essential to maintain financial stability and macroeconomics. He mentioned in an interview with the Economic Times (ET) that some moderation in growth is required to support the overall stability of the economy.

Aziz explained that India’s recent growth has been driven largely by exports, particularly in the services sector. With the global economy expected to slow down in the second half, including the possibility of the US entering a mild recession, India’s growth is likely to be impacted. Nevertheless, Aziz expressed confidence in India’s macroeconomic stability, citing the country’s ample foreign exchange reserves and the government’s commitment to fiscal deficit targets.

Highlighting the impact of monetary tightening, Aziz noted that it hasn’t significantly affected consumption and investment in India as it could have. This suggests that the US Federal Reserve might need to raise interest rates further. In light of declining inflation due to the anticipated growth slowdown in the second half, Aziz suggested that there could be room for the RBI to cut interest rates.

However, Aziz clarified that any rate cuts are unlikely to mark the beginning of an extensive easing cycle. He suggested that some easing measures may be implemented in the fourth quarter of the calendar year, indicating a cautious approach to monetary policy adjustments.

Regarding the potential risk of El Nino on food inflation, Aziz expressed confidence in India’s ability to withstand its impact. He attributed this to the country’s food stocks from the previous year and improved food management practices. Aziz stated that unless a severe shock occurs, India should be well-positioned to manage any modest effects of El Nino on food inflation.

Overall, Jahangir Aziz’s analysis suggests that while a slowdown in the Indian economy may occur in the second half of the year, it could contribute to sustaining macroeconomic and financial stability. The potential rate cuts by the RBI and India’s resilience in the face of external factors such as El Nino provide some reassurance for the country’s economic outlook.

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