BofA Economist Affirms India's Growth Durability Amid Global Shocks
India's economic growth narrative remains durable despite periodic slowdowns and global uncertainties, with the country's medium-term outlook continuing to remain strong, according to Rahul Bajoria, Managing Director and Head of India and ASEAN Economic Research at Bank of America.
Rejecting the view that India's growth story is merely statistical, Bajoria said the country's economic momentum is visible on the ground despite recurring global disruptions. "No, I would say, you know, just look around ourselves, right? We see construction pretty much everywhere. There is young people, you know, getting employed on a regular basis," he said.
Supply-Side Shocks Temporary, Investment Cycle Healthy
He acknowledged that India, like many emerging markets, has faced repeated supply-side disruptions since the pandemic, but argued that these shocks have temporarily affected investment decisions rather than altering the country's long-term growth trajectory. "Business cycles come and go. And I would say in the last five, six years, especially since the pandemic started, India and many other emerging markets have been subject to a series of supply side shocks... we have been dealing with one crisis after another," Bajoria said.
Despite these disruptions, investment activity has remained consistent. "What we are seeing is that there's a consistent pace of investing, right? Whether it is from the private sector, the government obviously has been scaling up its investments," he noted. He added that while India has not witnessed the kind of private investment boom seen during 2005-08, the current investment cycle is healthier because it is taking place within sustainable limits. This measured approach has improved productivity and ensured that growth remains sustainable.
Focus on Long-Term Horizon, Not Short-Term Fluctuations
Bajoria stressed that India's growth momentum should be assessed over a longer horizon rather than through short-term fluctuations. "We can quibble over whether it is seven percent growth or seven and a half, but there is a clear momentum and there's a compounding effect which is playing through," he said.
He pointed to healthy corporate and household balance sheets as another factor supporting the country's long-term prospects. "If you look at the balance sheets of companies, if you look at the balance sheet of households, they generally remain quite clean," Bajoria said.
External Shocks, Not Domestic Weaknesses, Constrain Growth
The biggest constraint on growth has been persistent external shocks rather than domestic structural weaknesses, he argued. If such disruptions ease, India's growth outlook could improve significantly. "If these interruptions were to kind of take a backseat, I think the pathway and the runway for India's growth actually looks quite clean," he added.
Nuanced View on Foreign Investment
On foreign investment, Bajoria cautioned against interpreting weak net FDI figures as a sign of declining investor confidence, saying the data presents a more nuanced picture. "I would not kind of paint a picture of doom and gloom, you know, purely from perspective of FDI because the story is a bit more nuanced," he said. He noted that gross inbound foreign direct investment remained close to historic highs even as capital outflows increased due to overseas investments and repatriation by existing investors.
Investor Sentiment Improving, Earnings to Catch Up
Bajoria also said investor sentiment towards India has improved after a period of underperformance relative to North Asian markets driven by the artificial intelligence investment boom. "There is a cause for, I would say, less pessimism around the Indian growth story. And we, if anything, on a standalone basis, it is looking reasonably resilient," he said.
Looking ahead, he expressed confidence that India's earnings and growth cycle would strengthen once geopolitical tensions ease. "My sense is that, you know, at some point, India, you know, from the earnings perspective, will play catch up," he said. Emphasising the importance of looking beyond short-term market volatility, Bajoria said investors should continue to focus on India's structural growth story. "My general perception is that, you know, the growth story is what one really should focus on from a medium term perspective," he added.
Energy Price Moderation to Boost Outlook
He added that if energy prices moderate over the coming months, India's economic outlook would improve naturally. "If energy prices were to come down, which we think it will, you know, six, 12 months down the line, you will find that the outlook for Indian earnings, the outlook for, you know, Indian growth will improve organically," Bajoria said.
