According to UBS Securities, the Indian economy is in the Goldilocks phase

The Indian economy is in a goldilocks phase with strong growth and manageable macro stability risks, UBS Securities said on Monday, with the economy likely to grow by 7% this fiscal.

In a webinar on Post-Election Indian Economy: Mapping India’s Growth Path, UBS Chief India Economist Tanvi Gupta Jain said potential growth is likely to sustain at 6.5-7% per annum between FY26-30.

India’s potential growth is driven by digitization adoption, increased services export and manufacturing thrust and implementation of tough reforms to take the potential growth rate to over 7%.

„While political stability will help ensure continuity in the policy agenda, we see a shift in economic policy dynamics with a populist bias (targeting lower income strata) and drastic reforms in the third term,” he said.

With the implementation of long-pending labor codes already approved by both houses of parliament, drastic reforms are likely to be delayed due to less political capital than in the 2019 and 2014 elections.

„We continue to expect the government’s push towards supply-side reforms, including in manufacturing, labor law enforcement, skill development and job creation (especially blue-collar jobs in low-skilled labor-intensive manufacturing),” Jain said. Implementation of drastic reforms including land reforms, big boost to infrastructure spending, divestment, farm bills, Uniform Citizenship Act, One Country One Election will be challenging.

„Implementation of tough reforms will help India achieve growth of more than 7%,” he noted.

While the agency will keep an eye on the upcoming Union Budget announcement, its rationale is that the government is sticking to a medium-term fiscal consolidation plan, but with a populist bias.

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„A higher-than-expected RBI’s dividend transfer (plus 0.3% of GDP in FY25) will create fiscal stimulus for lower income strata (remittances, higher rural spending, income tax rationalization, affordable housing) to increase populist spending to support consumption. Housing) continues its drive to raise,” Jain said.

The agency also highlights the apparent dichotomy between household consumption growth (post-pandemic trend) and real GDP growth (which is doing well), even if India’s growth is resilient. „India is witnessing a K-shaped consumption recovery, with affluent and premium segment demand seemingly healthy, and demand for entry-level and mass-market products muted post-pandemic,” Jain said, indicating those at the bottom end. The end of the income pyramid, which has been hit hardest by the pandemic, will restore spending power. To the extent that their income has not yet recovered.

Limited financial support for vulnerable sections of society and weather anomalies affecting rural incomes have widened the gap, he said, adding that a broad-based recovery in the capex cycle is needed to help expand India’s growth, as India is the largest producer of jobs outside of India. Agriculture.

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