Weak Consumption Demand Key Vulnerability For Growth: Shashanka Bhide

Shashanka Bhide, one of the three external members of the Monetary Policy Committee (MPC), on Thursday flagged a weak consumption demand as a key vulnerability for growth in the second half of the current fiscal as well as the next financial year.

After more-than-expected Q2 growth which printed at 7.6% on the back of a 7.8% clip in Q2, the Reserve Bank in the December policy review revised upwards the FY24 growth projection by 50 bps to 7%.

While the government does not have an official GDP forecast number, it expects the economy to grow at 6.5-7% this fiscal.

"The September quarter growth at 7.6% was significantly more than what we were expecting. But these numbers, even when they are more positive or favourable, require far more concern.

"I believe there are vulnerabilities to this 7% growth assessment. The few major growth drivers include investments that are driving growth, but we see weaker growth in consumption demand," Bhide said at an economic conclave organized by SBI here.

He went onto buttress his growth concerns to the falling global growth as well "we also obviously do not see external demand being the major driver of the economy. On the supply side, we've had weak monsoons this year and this has certain implications to agricultural growth and rural demand. Then there is also the issue of great global uncertainties."

He further noted that all growth engines of the economy are also not firing from all cylinders now, leading some to wonder whether those drivers that are doing well alone can sustain higher growth? It can be noted that the country's exports dipped 2.83% to $33.9 billion in November and the narrowing trade deficit at $20.58 billion, as imports fell 4.33% to $54.48 billion.

Cumulatively, exports in April-November contracted by 6.51% to $278.8 billion, while imports slipped 8.67% to $445.15 billion due to a fall in oil imports which dipped to $113.65 billion from $139.29 billion on-year.

On the lingering conflict in the Middle East, he said these conflicts have the potential to affect supply-chains globally. We also somewhat slow recoveries in some large economies, especially China. So there are issues that are important while looking at the growth dynamics today, he said.

On inflation, which the RBI-led MPC has been fighting since May 2022, leading it to increase the policy rates to a near record high of 6.5% by increasing the rates by 250 bps, he said as "we've declining core inflation now we are more concerned about food inflation at this point".

He also suspected the quality of credit growth which has been growing in high double-digits this fiscal so far, he said though the rising credit is another indicator of growth, but "what we need to see is that is this growth of credit an indicator of investment intentions or is it an indication of lack of adequate income to finance whatever investments have been made?,' he questioned.