India's Economy Resilient Amid Global Gloom, Says HDFC's Deepak Parekh

Although India is not decoupled from the world, the inherent resilience of the Indian economy can be a silver lining amid a gloomy global outlook, said veteran banker Deepak Parekh.

Even though India's GDP growth is below 7%, “there is a consensus across the board that India will still remain amongst the fastest growing major economies in the world,” Parekh, chairman of HDFC Ltd., said while speaking at Indian Chamber of Commerce's annual session in Kolkata.

Several economists have maintained that India could be the next best place to invest as major economies—including the U.S., China, and the Eurozone—face setbacks ranging from recessionary pressures to cost-of-living crises and geopolitical tensions. The Indian economy is seen as the only one capable of absorbing investments leaving China and Europe.

“India has also positioned its stance well on the global arena. They say India is a good country in a difficult neighbourhood. India has been able to stand its ground independently—articulating its neutral stance when need be and yet maintaining cordial relations with all its key trading partners,” Parekh said.

Parekh applauded measures to boost the domestic manufacturing sector, including production-linked incentives, with an emphasis on new and emerging sectors. “We need to seize opportunities arising from companies that are pursuing a China plus one strategy,” he said.

Refuting detractors of India's manufacturing story, Parekh said critics are missing efforts to create high-end manufacturing capabilities in the country.

On the global outlook, Parekh said that as the U.S. battles inflation, the rest of the world is facing the double whammy of inflation as well as dollar strength. “A strong dollar benefits American consumers who buys foreign goods, but for the rest of the world, the dollar strength is causing severe imbalances.”

The HDFC chairman invoked the IMF to call for prudent use of forex reserves to guard against possible future shocks and intervene only to ensure macroeconomic stability.

“This means allowing exchange rates to adjust, whilst using monetary and fiscal tools to align the inflation rate nearer the target rate. To my mind, the RBI has been extremely prudent in its exchange rate management.”

“We have never seen a free fall of the Rupee and the present currency depreciation is not a reflection of a change in the fundamentals of the Indian economy,” he said.