Q2 GDP Growth may Surprise on Upside: Guv

At a time when deepening geopolitical crises and higher US interest rates pose a risk to the global economy, early growth indicators suggest that India’s GDP growth in July-September will exceed expectations, Reserve Bank of India governor Shakti Kanta Das said.

“I must qualify because ultimately the numbers will tell for themselves-but looking at the momentum of economic activity, looking at a few early data points which have come in, a few early indicators, I can say that the second quarter GDP number, as and when it is release at the end of November, in all probability will surprise everyone on the upside,” Das said at media summit.

The RBI has projected India’s GDP growth at 6.5% for the current financial year, with the central bank’s growth estimate for jul-Sep currently also at 6.5%. India’s GDP grew 7.8% in April-June versus the RBI’s projection of 8%.

Speaking about JP Morgan’s recent decision to announce the inclusion of Indian government bonds in its emerging market bond index, Das said that the RBI was well-equipped to handle any swings in foreign investment flows due to global bond index inclusion.

“It’s a doubled-edged sword. The other side, as you well know, there are lots of passive investors who are mainly influenced by your weightage in the index. The reverse can also happen. When your weightage goes down, the passive funds will automatically move out or when there is some other development globally happening, there can be outflow of funds,” Das said.

“In this regard, I would like to mention that RBI has a track record over the years and especially in the recent period, of handling large- scale inflows and large-scale outflow,” Das said.

“In terms of market sentiment, I think the overseas investors have greater confidence on India’s ability, the RBI’s ability, to service the outflow of currency… that was because of the reserves which we built up,” he said.

Citing India’s macroeconomic stability, Das said that passive investors were now taking a more nuanced approach to the underlying strengths and weaknesses of an economy and that accordingly, India was not likely to witness much financial market volatility due to index inclusion.