According to a report in Money Control, Every storm runs out of rain just like every dark night turns into day – that’s the optimism exuberated by Prashant Jain, Executive Director and Chief Investment Officer, HDFC Asset Management Company as the world recovers from two long years of COVID-induced perils. He said this while hosting a virtual webinar on the global economy and equity markets on January 20.
After coming to a standstill in 2020 due to the pandemic, the global economy witnessed a robust recovery in 2021. Jain suggests that the “global economy has bounced back to the pre-pandemic path and most major economies, except Japan, have recovered the nominal output lost during the pandemic”. This growth was driven by fiscal and monetary stimulus provided by governments and central banks, vaccination, reopening of economy and pent-up demand.
China’s economic recovery was driven by strong global demand that aided exports along with measures by the government to revive the infrastructure and manufacturing sectors.
Economic Recovery
Jain expects growth momentum in advanced economies to soften as incremental monetary and fiscal stimulus normalises. Nevertheless, growth is expected to sustain above pre-pandemic levels on the back of a fall in unemployment, pool of excess savings, higher services spending, etc.
The strength of economic recovery is visible in the strong pick-up in demand for power, movement of goods through rail and road, increased exports and rise in GST collections.
“India’s growth outlook is one of the best in a long time and is driven by multiple factors,” Jain noted.
He highlighted that the growth in the Indian economy will be driven by “steady growth in consumption; rising employment and wages; robust exports; increasing competitiveness and PLI schemes”.
Other drivers for growth would be robust foreign capital inflows; divestments; favourable regulatory reforms across sectors; acceleration in infrastructure investments and normalisation of fiscal deficit.
The macro-economic environment in India is supportive of robust growth with broad-based improvement witnessed in consumption and investments. Large forex reserves and capital flows bode well for the Indian economy. “Gradual fiscal consolidation and range-bound inflation would further improve the macros,” said Jain.
Indian Manufacturing Industry
PLI schemes, tax incentives and an increase in import duties are providing a much-needed boost to the Indian manufacturing industry which is becoming more competitive compared to China where manufacturing wages have become approximately 2x of India.
Also, the ‘China plus’ strategy adopted by global organisations in the wake of COVID-led supply chain disruptions is accelerating the shift towards India and other emerging markets.
According to Jain, India is a likely beneficiary of this shift in manufacturing due to a large domestic market and improving ease of doing business, availability of skilled human resources at competitive costs and a strong focus on self-reliance in defence, chemicals, pharmaceuticals, etc.
Private capex is likely to pick up in the medium term driven by robust demand, deleveraging and strong profitability, suggests Jain, while the government’s focus on boosting infrastructure spend with National Monetisation Pipeline (NMP), National InfrastructurePipeline (NIP), etc. will provide further impetus to the economy.
Domestic consumption will improve as there is meaningful improvement in employment and new hiring which is visible especially in the organised segment. Digitisation and improving e-commerce acceptability has given access to a larger customer base which will also help increase domestic consumption.
The growth of new-age startups on the back of easy availability of risk capital, technical skills and supportive policies auger well for the economy as the startups help in employment generation, improving efficiency, creating wealth and driving innovation. (Money Control)
