India's economy is gradually moving to a sustainable and structural growth trajectory but the Ukraine war remains a big negative, said Ajit Ranade, Vice-Chancellor of the Gokhale Institute of Politics & Economics, in an interview with Moneycontrol.
"The rebound in the economy — which is predominantly K-shaped — during the past eight to nine months is remarkable. We are seeing a gradual move to a sustainable and structural growth rate of about 7-7.5%," said Ranade.
"The big negative is the war in Ukraine. It has led to a spike in commodity prices, not just crude, but also gas, coal, steel, and most commodities. Moreover, the food price index has also moved up considerably," Ranade highlighted.
Ranade said that in the K-shaped recovery, those sectors were benefitted in which the work-from-home regime is not disruptive but the labour-intensive sectors have not seen a surge in growth.
"These included sectors that have a high digital footprint as well as healthcare and pharma, chemical industries, and even metals and minerals due to high commodity prices. Large companies have been beneficiaries, but smaller ones have not fared well. Large sectors that are labour intensive are construction, agriculture, textiles, leather, retail, and tourism. Except for textiles, we haven't seen a strong surge in growth in others," said Ranade.
Ranade said as central banks are aggressively lifting rates, it is a major negative for asset markets, housing, and other investments. Also, rising interest rates are causing capital outflow from emerging markets (EMs).
Disclaimer: This article is based on a Moneycontrol interview. The views are of the analyst and not of MintGenie.