Kaushik Das, Chief Economist at Deutsche Bank, added that growth in the second half of 2024-25 (FY25) is expected to improve slightly. He mentioned the likelihood of FY24’s 8.2% growth being revised downward, which could provide a lower base for comparisons and support the growth outlook.
While, Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank stated weak consumption and slower-than-expected private sector capital expenditure (capex) as key concerns.
This is the verbatim transcript of the interview.
Q: When I did the poll on December 30, it looked like ₹86.25/$ by March end was okay, but the slide thereafter and the sharp rise in the dollar index to almost 108.3. Do you think the weakness can be even more in the first half of 2025?
Prasanna: A slide is a very strong term. If you look at the percentage depreciation of the rupee against the dollar, especially when you compare it with various other currencies, it’s much less than what some of the other currencies have experienced.
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So, while I do agree that the rates have depreciated a bit, you can call that the dollar index has appreciated substantially; it was just at 100.5 before the Trump trade started sometime on September 30, 2024, or so, and after that, we have seen nearly 8-8.5% appreciation of the dollar, and hence depreciation of most of the other currencies. The rupee has performed relatively better than most of the other currencies.
Having said that, unfortunately, we do feel that the dollar strength will possibly continue for at least a month more. And all of the fears of the Trump trade and the policies, whether it is on tariffs, corporate tax cuts, equity, growth, inflation, as well as the fiscal deficit, all of that is getting factored in. Now it remains to be seen how much of it is reality and how much of it is just fear. And accordingly, after the next month plays out, the dollar will possibly either peak out and then react to the actual announcements by the President when he takes office.
Q: What are you expecting in terms of renminbi depreciation, and therefore, should we be wanting and preparing for a cheaper rupee? The rupee has depreciated by 3% in 2024, should it not be at least 3% in the current year as well?
Prasanna: Our house view is for the yuan to depreciate to something like 7.5% and depending upon what kind of tariffs come, we take it forward from there.
On the INR bit, I also agree with the poll results that you have got, which is that we are in a depreciating scenario. RBI will step in to measure the volatility a bit, but the sense that the dollar INR goes higher, the rupee depreciates is given. So, I would say that around 86.5, by this 2024-25 (FY25) end and December end (of 2025), maybe close to 87-87.5, is something that even I would subscribe to.
Q: You have only a 6.1% for the current year, a little lower than the range of my expectations for 2024-25 (FY25). Why are you factoring in such a low number? Are you worried about domestic consumption faltering?
Bhardwaj: Yes. We are looking at most of the indicators and they are suggesting that consumption is likely to remain extremely weak, and private sector capex, too, is not picking up at the pace at which we have been anticipating. It’s a rolling expectation that we have been holding on to for the private capex. So, none of the two private sector categories, primarily, are expected to hold up.
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At the same time. If I look at the centre plus state spending, especially on the capex side, it is still not picking up pace. The pace at which we were expecting. The October-December 2024 (Q3FY25) quarter has passed by, and now we are left with January-March 2025 (Q4FY25). So, what we need to keep in mind is the kind of excessive welfare schemes that the states have been announcing. To meet their 3% overall targets, Fiscal Responsibility and Budget Management (FRBM) targets, they will have to compromise on spending somewhere else. And in that context, capex could still not be taking so much of a lead.
So, somewhere all of this together, it is a more broad-based expectation apart from agriculture. We are looking at a reasonable slowdown across the board and at the same time we need to keep in mind that last year, H2 (second half of the year) was 8.2% average, and it is a very high base so on that, we are looking at H2 of 6.2% a little here and there, but broadly, yes, that is going to be there, assuming that there are no changes to the number. Of course, we might be seeing changes, but I do not want to speculate there.
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Q: What is your sense?
Das: We knew that in the second half of the fiscal year, there would be some pickup in growth. Also, we have built in the possibility that FY24, 8.2% growth will probably be revised lower, so that will also give some support to the base. And all taken together, government spending will increase more than the first half that we have seen already. We have seen some increase in momentum in October-December. Yes, numbers could be biased, and the risk could be biased to the downside.
But all taken together, we could come to 6.5% growth for FY25 but whether we are at 6.3-6.5 for this year or next year, also we have had 6.5 The main point is we are going to be below the potential growth rate of the economy, which is at 7% or higher, and that is what we need to focus on.
Watch the accompanying video for the full interview.