Private capital expenditure was unlikely to pick up in the absence of strong demand, and though private consumption in the country seemed to be holding up, it was being driven by the top 5%-10% of the population, Varma said.
"I always think of the economy as an aircraft flying on four engines. All four engines are revving down, so what is going to happen to growth?" The professor of finance and accounting said monetary policy globally had become complacent about inflation initially, before switching gears.
"I sometimes describe it as monetary policy driven by a guilt complex - that we goofed up a year ago, so we should not make the same mistake, but it is okay to make the opposite mistake." The Fed delivered a string of 75-basis-point and 50-basis point rate hikes in 2022, raising the key rate by a total 450 bps, in its battle to curb inflation that had climbed to 40-year highs. India's monetary policy panel failed in its mandate to keep inflation within the 2%-6% band, with it breaching the upper tolerance limit for three consecutive quarters to September 2022.
Latest reading for January showed annual retail inflation rose to 6.52%, yet again rising above the central bank's upper threshold for the first time in three months and raising concerns around at least one more rate hike. "I'm not saying that we will never raise rates. I am saying we should wait and see what is the impact of what we have already done. And if we find that that's not enough, raise rates at that point". "I think 2022/2023 is going to be very bad for inflation, there is no doubt about it. But what I see is that the major drivers for that have dissipated." In particular, lower crude prices will eventually filter through to retail prices, helping pull down inflation, Varma said.
"We know there is a gift packed and ready, it is a question of when it will come." (Reporting by Swati Bhat and Ira Dugal; Editing by Nivedita Bhattacharjee)
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