India Will Register Growth Rate Of 6.5% By End Of FY25 Feel Economists, Though Individuals Hold Different View: Free Press Journal 26th April 2025

 

The two lacunae, if they are to be called so, during the year were the tepid growth in consumption and private sector investment (which was not broad-based but sector-specific).

India will be ending FY25 with a growth rate of 6.5%, which is quite impressive. The two lacunae, if they are to be called so, during the year were the tepid growth in consumption and private sector investment (which was not broad-based but sector-specific). On consumption, there is a dualistic story where the rural population tended to spend more while urban consumption lagged. The reason was high inflation, which came in the way of the purchasing power. But the CPI inflation numbers, which are used at the policy level, reveal a positive tendency, as inflation rates had been coming downwards and ended at 3.3% for March. There are, hence, two rather distinct views on the economy: as perceived by economists, who go by hard data, and as perceived by individuals, who base their view on personal experience.

In this context, it is compelling to take a look at the RBI’s consumer confidence survey, which tells us how individuals feel about the state of the economy. The RBI’s consumer confidence survey is carried out every two months and covers around 6000 households. These households give their view on certain parameters based on their perceptions. The table below gives the proportion of households who felt that a certain parameter improved in March 2025 compared to last year. The proportion for the same parameter is also provided for March 2024, where perceptions were compared over March 2023.

Source: RBI

The table shows one unequivocal trait, which is that households have a different view on the economy when compared with professionals who go by hard macro-economic data. A smaller proportion of individuals felt that the economic conditions have improved this year relative to last year. While this would gel well with the fact that the GDP growth this year will be lower than FY24 at 6.5%, individuals probably look at other variables too.

Employment perceptions too vary. The proportion of households who believe employment has gone up has come down to 35.5% compared with 38.1% in March 2024. Here it looks likely that the responses are driven by their own experiences in the market or that of friends and relatives. Also, the news on companies laying off employees plays at the back of the mind when a response is provided to this question. This view is in contrast to the EPFO data, which indicates that more jobs have been created during the year.

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Individuals would be affected the most by what affects them closely, which is incomes and prices. The former is something which is felt as earnings are known. Prices would be a general feeling of real purchasing power, which could tend to be overstated or understated depending on how the money is spent. The two, at times, get linked, as even when the income increases, higher prices for essentials can lead to the perception that the income has not quite increased.

The picture here, hence, would read that fewer households feel that their income has increased, though more believe that spending has increased. People do not suffer from money illusion and, hence, look at real income most of the time when judging if nominal income has increased. Within spending, there is an increase in the proportion of households who believe they have spent more on essentials, while the same has come down for non-essentials. Quite clearly, the price factor comes in both in absolute terms and rate of change, which is inflation. Higher food prices have increased family spending on essentials, leaving less for discretionary goods and services.

It does look like that at the end of the day, prices and inflation matter the most and could be clouding the judgement of respondents. There was an overwhelming majority of people who feel that prices have increased and inflation is high. Therefore, even while the official CPI inflation numbers have declined to 3.3% in March from a high of 6.2% in October, households do not concur on the same.

First, individuals are more likely to consider the ready basket of goods consumed, which excludes things that are not purchased on a daily basis, like rent, clothing, and so on. Second, they tend to look at prices at the present level compared with the last low price paid for the good or service. They may not remember the prices exactly a year back but tend to benchmark against the lowest they paid for the product. Third, often human psychology tracks prices that have gone up but not come down. Therefore, there can be a bias to look at products where prices have risen. The higher price of bread or milk by even Rs 2 a loaf or litre will register as prices going up, while that of tomatoes coming down from Rs 40/kg to Rs 30/kg is not seen in the same light. RBI on inflation expectations, is that households always feel that inflation is much higher than what the official data says. The latest survey shows that for March 2025, the inflation perception was 7.8% against the official number of 3.3%. In fact, the entire year, the range of perception was between 7.8% and 8.4%. Hence, the perception of individuals tends to be based on different factors.

This raises interesting questions from the point of view of policy. The credit policy targets inflation, which is defined by the NSO. But these numbers tend to be much lower than the perception of households. This is where there would be a divergent view, especially when the net interest rate is looked at. At the policy level, the expected inflation rate of 4% for the year would indicate that a repo rate of 5.5% would still mean a real interest rate of 1.5%. Individuals, on the other hand, will always feel that their real return is in the negative zone.

Has US scored a self-goal? Financial Express 24th April 2025

 

Donald Trump's aggressive tariff policies, designed to boost US production, risk backfiring. 1 They could lead to increased inflation for American consumers, a weaker dollar, and a potential shift away from dollar-denominated assets.

Has Donald Trump scored a self-goal with the tariff games of the past couple of months? Tariffs and strict immigration policy were meant to make America great again — the US would produce more goods and services with their own labour force and be less dependent on the rest of the world. With its economic might, this model looked theoretically possible, though not feasible. But the rather pusillanimous approach to tariffs has created a major disruption to the world economy, overwhelming the far more serious political conflicts in Ukraine and Gaza.

From the American point of view, this policy has got a large number of countries to open doors fully for negotiations. Any flexibility shown by countries on tariffs will be a victory for the US; but without bilateral treaties, where tariff rates become generalised, the doors are opened to all countries, raising the threat of dumping. This can be the larger threat of lowering duties on automobiles, engineering goods, food products, chemicals, electronics, etc.

But what will be the impact on the US? To begin with, any concession given by any country on lowering tariffs for American goods will mean higher exports for the US. Will this amount be large enough to offset its existing bilateral deficits? One cannot be sure, given that the US continues to be the largest importer of goods. Therefore, if its new tariff structure is rationalised based on how other countries lower their tariffs, the gains can be only on the exports side.

But what if other countries do not lower their tariffs or retaliate with higher tariffs (like China)? In that case, the exercise could turn out to be counterproductive. Let us get back to the basics. Why does the US import so much from Mexico, Canada, or China? The laws of comparative advantage hold where other countries produce goods at a lower cost. For instance, textile, leather, electronics, and pharma goods can be produced in the US, albeit at a higher cost. Metal goods could be difficult to produce if the reserves are limited. Therefore, trade has addressed issues of economies of scale.

With high tariffs being imposed on all countries, there are various possibilities. First, with tariff competition, there can be substitution across exporting countries. India can export electronics at a relatively lower rate than China, and hence the US still gets the goods, but at a higher cost from another producer. The European Union (EU) has a lower tariff rate and can take over exports of other countries with higher tariffs. But from the US point of view, the goods would cost the final consumer more, as the tariffs would have been raised.

The other possibility is that the US builds the same capacity to produce goods it imported earlier. Here, the time factor would come into play as such capacities cannot be set up in a few months’ time. They would require a year or two to accomplish. However, counter-intuitively, it can be said that this could have been done earlier too; but it was not the preferred option because of the cost involved. With migrant workers now being out of the frame, US labour may not have the capability of such relatively low skills, or would be available at a higher cost.

Hence, either way, the price effect cannot be escaped and inflation will be higher for sure. This is why the Fed has been raising the red flag intermittently on being cautious about rate cuts on this score.

The markets, however, have reacted with alacrity. The stock market has seen a downside to growth in the US and has taken a southward movement. The dollar has started falling against other major currencies, with the dollar index now going at less than 100 from a high of 108-109. A weaker dollar has meant potential appreciation for other currencies, which will also raise their export prices. This can mean even more expensive imports for the US.

The bond yields, however, have behaved differently, with the 10-year treasury now moving in the 4.4-4.5% range. The reason is not hard to guess. The potential outcome of this tariff saga has made investors sell American treasuries, thus leading to a fall in their prices and a rise in the yields. In such a situation, the biggest beneficiary has been gold, where the price has been moving up steadily towards the $3,500/ounce mark. Last year, it was observed that domestic households, investors, and central banks preferred gold as a safe haven in a situation where the world economy looked fragile, especially after Trump won the elections.

In such a situation, a pertinent question to ask is, if investors are moving away from dollar securities to other assets like gold is there a threat to the greenback? This can be considered a temporary phenomenon as one assumes that there will be more clarity after the 90-day period ends. This can probably be the time for the euro to become more preferred as an anchor currency. The EU appears fairly steady, with discipline among the 20 group members. Presently the weight of the euro in the overall basket of forex reserves is 18-20%, though this is mainly due to member countries holding the currency. This can be an opportune moment for countries to take some affirmative steps towards de-dollarisation.

India stands to probably gain some advantage at the macro level, with its tariff threat of 26% being lower than that of other competing nations. Besides, there is urgency being shown in bilateral negotiations, which can make our position stronger. Hence, while specific sectors have to be worried about the implications there could be some collateral benefits trickling in, especially if India can become the supply engine for goods hitherto procured from China by the US. The next few months will be critical for sure.

How do we interpret the IMD forecast? Business Line 19th April 2025

 

Is the credit deposit ratio of banks still worth tracking? Mint 16th April 2025

 https://www.livemint.com/opinion/online-views/credit-deposit-ratio-india-investment-deposit-ratio-indian-banking-system-2024-statutory-liquidity-ratio-slr-capital-11744639272420.html

Two sides of the digital coin: Book Review in Financial Express : 13th April 2025

 

Payal Arora’s From Pessimism to Promise explores how youth in developing nations embrace digital tech for empowerment, creativity, and connection—contrasting Western fears of AI and surveillance with optimism in the Global South.

Today there are basically two camps when it comes to assessing the spread of technology in our lives. At one end are those who are suspicious of technology, which can be seen in the West where citizens see the darker side of the phenomenon. Here the community believes that algorithm control and AI will destroy democracy and social fabric. They believe that it has been used for manipulating minds and spreading disinformation. The malaise is deep rooted with phenomenon such as social media becoming an addiction.

On the other side, in developing countries, there is reason to believe that a lot of value has been added by AI and technology to deliver superior results. A lot of socio-economic change has been fostered by the use of digital applications which have even made life better in these nations. This is the theme of Payal Arora’s book, titled From Pessimism to Promise.

The author’s view is that outside the West, there is significantly a different outlook to technology than has manifested in countries like Brazil, India and Bangladesh. The new generation, which we can call Gen Z, has embraced it, creating a contagion with deep beneficial effects not just in terms of the material world, but also general being.

To begin with, she outlines the pessimistic view of technology. There is a view that we are deep into something that we cannot get rid of, as most of us, especially the youth, are addicted to technology in some way or the other. The internet and social media have made us slaves to potential influence. The argument is that digital platforms are out to trap and depress us to the extent that we are mentally paralysed. Algorithms automatically take us to where the engine wants us to go, and not to what we would like to view, raising questions on the hidden agendas involved.

There has been a tendency for Google algorithms to be hard coded with white supremacy and misogyny. A similar sentiment is aired on Meta which intentionally boosts divisive content. Even for Instagram it is argued that US teens feel worse about themselves. This is the darker side of the technology revolution.

The author then turns the story to the developing world and explores how things have gotten better in a remarkable way on the back of these very platforms. She believes that there is near consensus that digital access and usage are the driving force for a better future in these countries.

She refers to the ‘digital leisure’ theme of 2021, which included a survey of refugees in Venezuela. The majority wanted to have access to the digital world and mobile devices. WhatsApp and Facebook uplifted the youth in a definite manner. Reading about other people’s achievements and stories tend to empower the youth, who feel motivated and confident. More importantly, these platforms offer space to offer opinion and know about others. Her conclusion is that the youth have come to terms with the idea that their future lies in their hands, which is important. The author focuses on several aspects of the digital age here. She looks at AI as being good for various projects, like something as basic as creating enabling anti-poaching systems in Africa. Second, she delves into how algorithms help digital creativity. More specifically, she shows how young creators across socio-economic groups use digital tools and platforms to create content and manage data, besides developing creative processes to build communities.

Third, she changes direction into a rather new area that is rarely spoken of when we discuss social media or the internet. This pertains to digital desire, which has helped society to reimagine pleasure-based perspectives. This, she explains, is more a response to growing loneliness and the need for intimacy, pleasure and play. She moves away from the traditional world here when it comes to patriarchal values that impose conservativeness in thinking. As an extension she shows that when youth access adult content, romance and intimacy through this media, they have procured psychological support. In fact, she highlights how certain adult sites have become an educator in countries like Egypt, Kenya and Mexico. Further, dating apps have made significant inroads into the psyche of youth and are used even in tier 2 and 3 towns in our own country.

Next she re-examines the culture of surveillance which is a concern in the West where it is felt that people lose their privacy. She turns the argument around and looks at it from the point of view of ‘care’. Surveillance care systems in the South have served as a positive force against infectious diseases and are used effectively for eldercare and self-care. An example given is the hesitancy of women to become Uber or Ola drivers as they were apprehensive of serious issues like security as well as rudimentary problems of finding toilets along the way. This has been overcome by the app which shows them the nearest facility. Similarly, digital tracking also ensures safety of both the passenger as well as driver which, in turn, eases work life.

The author believes that the rise of the next billion users from developing countries, which is termed as Global South, would radically diversify digital culture. Tech companies will move beyond commodification of mindsets. The government and aid agencies would work at shaping the nature of global datasets and algorithmic cultures. But the youth will not wait for policies or designs to change. They would be forging ahead and finding their own niches and search for cross-cultural emotive resonance that makes their content go viral. These would be ways in which technology would change thinking, as these societies view this tool with promise rather than pessimism or suspicion.

Madan Sabnavis is chief economist, Bank of Baroda

From Pessimism To Promise: Lessons from the Global South on Designing Inclusive Tech

Payal Arora

HarperCollins

Pp 240, Rs 699

Will The New Airport In Navi Mumbai Address Issues Of Passenger Convenience? Free Press Journal 12th April 2025

 

The services were regular and touched all important points from where passengers could take alternative transport facilities to reach their destinations. The prices were fixed and reasonable and provided comfortable journeys to passengers.

The Kempegowda airport in Bangalore opened in May 2008. It was probably the first modern airport in the country with a large terminal. It had several escalators to move passengers and also a modern food court, which is now a standard feature in all new airports. The special feature of this airport was that the authorities had started a bus service to different locations in the city, which is 35 kms away. The services were regular and touched all important points from where passengers could take alternative transport facilities to reach their destinations. The prices were fixed and reasonable and provided comfortable journeys to passengers.

Enabling such facilities was important, as all new airports have tended to be located away from the main cities so as to have larger structures to accommodate more flights and passengers. Also, it is believed that having such airports in the outskirts can reduce congestion within the cities. However, once airports shift to the outer circles of cities, the challenge for passengers is to reach them on time. Often the time taken to reach the airport would be longer than the flight time, excluding the mandatory two-hour advance check-in, which is insisted upon by airlines. Therefore, easy connectivity is a prerequisite for ensuring smooth travel, especially so as airports charge passengers a fee for using the facility.

The famous terminal in Delhi, T3, has an airport express, which can take passengers to the centre of the city in less than 20 minutes, and one can then switch over to the metro along the way. In Mumbai the situation is different. The T2 terminal, which is probably the grandest terminal in India, can be a nightmare for anyone who is not familiar with the city. While there are some bus services, the connectivity is limited, and one ends up getting fleeced by cab drivers. If one were to travel to Terminal 1, it would not be too good an experience, given the traffic congestion, and would possibly miss the flight if the timeline is tight.

Against this background, the commissioning of a new airport in Navi Mumbai can be looked at. The airport evidently has been presented as an ultra-modern one, with multiple runways and lavish facilities. It is to be even more magnificent than the T2 of Mumbai and promises to be an experience for all passengers.

 

However, three questions come to mind as to whether certain tick boxes have been addressed. First, whether or not the commute from the new airport to the rest of the city has been thought through, as there can be very long journeys, which can put one back by a couple of thousand rupees. Second, while there are indications of multiple runways, would flights be able to simultaneously take off and land, as it happens in other developed countries, or would it be like the present Mumbai airport, where both legs of flights use the same runaway, leading to cascading delays? Third, as the T2 terminal will be retained, would there be connectivity between the two so that passengers who have connecting flights can take them? The last probably will not be possible, given that the two cities are virtually different. Evidently, one has to be careful about booking their tickets if there is any connection involved. This is not unique to India because London and New York have multiple airports, which are located in different parts of the city. One takes care while booking connecting flights, keeping this in mind.

The problem with Indian infrastructure is that while a lot of money is spent, planning for the last mile always takes a back seat. The thought is that those who have to travel will have to figure out the way, and it is not the responsibility of any authority. The focus is invariably on completing projects as quickly as possible so that there are few time or cost overruns. But the issue of connectivity is seldom on the agenda. Ideally, when the metro system was planned in Mumbai, over 10 years ago, the Navi Mumbai airport should have been considered.

This is probably the major challenge in most infrastructure projects in countries that are trying to accelerate the pace of construction to offer better services to their citizens. The IMF had undertaken a study to assess how efficient highways are across countries in 2022. Based on Google Maps, one can ascertain the time taken to traverse between two cities. The study looked at the time taken between one pivot city and 4 other major cities in the country. For India, it was Mumbai to Delhi, Bangalore, Hyderabad and Ahmedabad. This was done for 160 countries. Besides congestion, the analysis was to reflect the quality of roads. If the quality of roads was not optimal, in terms of levelling or pot holes, the time taken would be more, and, accordingly, the average speed would tend to come down.

 

The results were interesting. The lowest speed was in Bhutan, at 38 km/hour, based on the terrain-adjusted harmonic mean. The highest was the USA, with 107 km/hour, while it was 58 km/hour for India. Interestingly, African countries like Senegal, Malawi, etc., had average speeds of above 70 km/hour, with Namibia at a high of 99 km/hour. Admittedly, the traffic density has helped to push up speed.

The limited point here is that while the focus should be on accelerating the build-up of infrastructure in the country, attention should be paid, in parallel, to the quality and durability of roads and ancillary services for airports.

It may be hoped that given that there have been several lessons that have been learnt from building new airports across the world, including India, this particular aspect has been addressed so that once the new airport is functional, there would be seamless movements of both passengers and aircrafts to enhance efficiency. In fact, the tarmac issue is also important since airlines do face challenges of cascading delays, which also affect use of fuel, mainly due to congestion.

The MUDRA Revolution: Businessline 8th April 2025

Trump tariff impact: Brace for exchange rate wars too: Business Standard 3rd April 2025

 Three things need to be kept in mind when analysing the impact of the new tariff order imposed by the US. The first is whether higher tariffs will lead to more domestic production in the US. If the price factor kept local production down, then this will help. But the consequence will be higher inflation for sure. 

 

Second, the relative tariffs now imposed across countries matter. Hence, India has to look at competition from countries which attract lower tariff rates in the new regime. The third is whether the relatively smaller countries can scale up to substitute for others. This begs the question as to whether countries have the ability to scale up substantially to substitute other exporters.

What has the US done? 

 

There are new tariff rates announced for 180 countries with the base level being 10 per cent. The tariffs have been fixed at broadly 50 per cent of the rate countries are charging US imports. Therefore, there is a concession reciprocal tariffs structure announced. 

 

China has a higher rate of 54 per cent because the 34 per cent half-tariff will be on 20 per cent imposed earlier. The US has calculated the effective tariff rates on US goods in these 180 countries based on both nominal rates as well as indirect protection provided through different measures. 

Should India be worried? The answer is yes. While growth in India is largely domestic and hence the overall gross domestic product (GDP) effect may not be more than 0.15-0.2 per cent, assuming exports to US falls by 10 per cent, overall trade will be impacted due to every country going back to the drawing board. 

But the problem will be at the micro level where industries like pharma, electronics, precious stones, readymade garments, engineering, leather goods are concerned. 

 

At the industry level, there will be a hit as other competing exporters to US would rework their models. Indian companies may have to cut on price to retain advantage or hope the rupee depreciates. The latter is possible because high tariffs in US means higher inflation for sure, which will keep rates up and the dollar stronger. But profitability will be under pressure. Also in the present state of intense competition, it will be hard to substitute other markets as all competitors will be working on the same lines. 

MSMEs under pressure

 

In particular, the MSMEs will be pressurised again. They have a major share in exports and are concentrated in the sectors that are going to face higher tariffs. So clearly, the woes of the MSMEs will not end and the government may have to work out a strategy here to protect them. More production linked incentive (PLI)-like schemes is a way out besides the usual channel of credit flows. The entire export strategy needs some serious and fast rethinking. 

 

The financial markets are the ones which will be unequivocally affected. We can be prepared for a more volatile exchange regime as the dollar will keep swinging in both directions during the year. This will mean more Reserve Bank of India (RBI) intervention for sure, with the proclivity to allow for depreciation to support exports. 

Such a measure be done by probably all other countries as well, which can lead to an exchange rate war besides trade war reminiscent of the Depression time. While this is an extreme situation, it cannot be ruled out.

Further, the US Fed will have to be more gradual on rates as US inflation will rise for sure, as these high tariffs are transmitted. Even if domestic production picks up, it will be at a higher cost as the reason for high imports was to save on costs.

At the global level, slower trade will also mean slower growth, especially for export-oriented economies. There are two possibilities on how the world will react. The first is to also raise tariffs, which can lead to a full-fledged trade war. This could be in pockets but unless countries collaborate, which is unlikely, this may not quite work out. The other is to get into a dialogue with the US, which can be through bilateral talks or country-groups getting together. 

 

As a corollary, countries may start talking to one another to further trade relations keeping US out. This looks more likely. But for sure, this year will be tumultuous on economic grounds.