India could average 7.2% growth despite H2 slowdown
Economist Madan Sabnavis predicts a 7.2% annual growth for India despite a projected slowdown in the second half of the fiscal year.
India's economic trajectory is set for a moderate pace in the latter half of the current financial year, even as the nation maintains a strong long-term growth outlook. According to economist Madan Sabnavis, while the second half of the year may see a dip, the overall annual growth is expected to hover around 7.2%.
Speaking to ANI, Sabnavis highlighted that India's long-term potential remains robust, with the possibility of hitting an 8% growth rate in the near future.
Quarterly Breakdown: A Strong Start Facing Headwinds
The fiscal year began on a high note with a 7.8% growth rate in the first quarter. Looking ahead to the second quarter, Sabnavis anticipates a slight moderation but still expects positive momentum.
“My sense is that in the second quarter too, we would have a similar kind of number, maybe not 7.8, but something more in the region of around 7.5, 7.6%,” Sabnavis stated. He noted that while the second quarter might receive some support from base adjustments following the new GDP series, this cushion is likely to fade as the year progresses.
The economist warned that the third and fourth quarters could see growth rates slip below the 7% mark. He attributed this potential slowdown to two primary factors:
- Monsoon Impact: The influence of seasonal weather patterns on economic activity.
- Consumption Trends: A possible slowdown in domestic consumer spending.
The Path to 8% Potential Growth
Despite the near-term fluctuations, the long-term vision for the Indian economy remains highly optimistic. Sabnavis believes that 8% is India's true potential growth rate, a milestone that could be reached as early as 2027-28.
“Definitely, I think India's potential growth rate is 8%, something that should be achieved soon, hopefully in 27-28. But otherwise, definitely, I think by 28-29, we should be well above the 8% mark,” he added.
However, reaching this peak is not without challenges. The timing will depend heavily on several external variables, including:
- Global economic environments.
- Fluctuations in international oil prices.
- Geopolitical developments.
- Changes in global tariff structures.
Global Markets and Bond Volatility
Shifting focus to the financial landscape, Sabnavis expects continued uncertainty and volatility in global bond markets for at least the next six months. He noted that investors are currently preoccupied with assessing relative returns and monitoring developments in the United States.
He pointed out the yield differential between Indian and US bonds, noting that while US Treasury yields are around 5.2-5.3% and Indian bonds are near 7.2%, the gap alone does not dictate investment flows. He suggested that stability will only return once the US environment and the Federal Reserve's reactions become more predictable.
Furthermore, Sabnavis explained that inflation plays a critical role in bond yields, using the massive gap between China's low yields (below 2%) and US yields to illustrate how central bank rates and inflation conditions work together to shape market dynamics.