India's Economic Growth Projected at 6.7% Amidst Global Slowdown
Morgan Stanley predicts India's economic growth to be 6.7% in the current fiscal year. Economists Chetan Ahya and Tanvee Gupta at the firm highlight the role of increased capital flows in fueling a positive cycle of currency appreciation, reduced interest rates, and robust domestic demand growth. They explain that "Higher capital flows have been the anchor of a self-fulfilling virtuous cycle of an appreciating exchange rate, lower interest rates, and strong domestic demand growth”.
Capital Inflows Expected to Remain Sluggish
However, the economists also anticipate that capital inflows will remain subdued for a longer period. The firm attributes this slowdown to persistent risk aversion stemming from a sluggish global economic environment and a rise in credit defaults.
Credit Growth Projected to Decline
Morgan Stanley projects a decline in credit growth. According to their predictions, it will decrease to 10% over the next six months. This projection stands in stark contrast to the 4-year average of 28.3%. The firm suggests that increasing bad loans are likely to increase risk aversion among banks which would contribute to this expected decline. This increased risk aversion could make banks less willing to lend, thereby impacting credit availability and potentially hindering economic momentum.