The panellists put the spotlight on a range of economic challenges, including the impact of US tariffs, escalating trade wars, and geopolitical tensions, on the domestic economy. “I can’t say India will be completely insulated, but the strength of Indian economy has been its domestic consumption,” Manian said. “So, to that extent, all through these years, some element of insulation India has got because of that. And I don’t think that will change.”
They also discussed how India can tap into growth opportunities amidst the unfolding chaos given its young population, policy reforms, and focus on infrastructure investments. “I think we should be more focussed around what our real strengths are as a nation,” Jejurikar said. “We actually don’t need to overreact to worries about tariffs and how the rest of the world is going to react because we are in a position where we can negotiate with the world now.”
Sabnavis agreed that, at a macro level, the domestic economy was relatively cushioned from the shock of tariffs. “America is our largest exporting partner. It is around 17 percent of overall exports, but its share of overall GDP is around 2 percent,” he pointed out. “So even if my exports come down by, say, 10 percent, GDP gets affected by 0.1-0.2 percent, which is not significant.”
However, in the course of the discussion, Sabnavis explained how, at a micro level, several domestic sectors, such as pharmaceuticals, textiles, gems, chemicals, to name a few, are likely to be affected. “I wouldn’t like to sit back and say that, look, nothing is going to happen,” he added. For example, the banking sector could be hit with asset quality concerns if growth takes a major hit. “I think we need to be a bit cautious,” he highlighted.
Jejurikar said that even if there was a downturn in the economic cycle, companies and entrepreneurs should use the slowdown phase as an opportunity to prepare for a stronger future by becoming leaner during that period.
In fact, domestic companies have been grappling with weak consumer demand in urban markets. Economic data shows a slowdown in India’s Manufacturing Purchasing Managers’ Index, which declined to 56.3 in February from 57.7 in January. There is also surplus capacity in most industries as business confidence is shaky.
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Jejurikar is optimistic: “As long as we have strong innovative products and we are able to excite customers with them, there is demand. The crux to growth is innovation, which is innovation with exciting products at very good price points. That’s very important in the Indian context. Consumers want a lot but are not willing to pay for it, and all of us have to be willing to work that much harder on costs.”
Jejurikar expects demand to bounce back in rural markets and sees the domestic market as a big opportunity for growth. He also said it was good for companies, such as his, to have 15-20 percent unutilised capacity because that allowed them to seize opportunities in response to demand conditions in the market.
“So, yes, I think private capex is growing. We’ve just invested close to $2 billion in our electric SUVs, over the last two years, and they’ve just been launched, going for market deliveries in March, and we’ve got an exciting response. So yes, we continue to stay positive and invested,” Jejurikar asserted.
Manian noted that overall capacity utilisation had stagnated at 75-80 percent over the past few years partly because consumption is being fed through imports of high-quality goods at one end, and mass-produced, low-quality and low-cost goods at the other end of the spectrum. “The manufacturing ecosystem [needs] to make sure that they either produce high quality goods which meet the demand or the low-cost mass-produced goods,” Manian opined. “I would say there is a journey to be made to get there.”
However, Sabnavis observed that infrastructure companies, backed by government capital expenditure, are seeing higher capacity utilisation than consumer companies. “One factor, which has been stated by number of FMCG companies is that inflation has come into [play and consumers] have less spending power,” he said, and alluded to the skewed distribution of income to explain the variance in buying patterns.
To solve the consumption puzzle, the panellists discussed the state of jobs in the country. “How many jobs are being created and what kind of jobs are we creating,” Sabnavis rhetorically asked. “We need to generate self-sustaining income which will lead to higher consumption.”
Small businesses play a key role in job creation and contribute close to 30 percent to the GDP. On the one hand, as Manian emphasised, most banks are focussing on growing the MSME business. To that end, he also believes that funding availability to the sector is gradually improving. “I think NPA levels in the MSME sector have dropped. Overall, the environment is good for the financing of MSMEs and growing that sector,” Manian added.
On the other hand, MSMEs account for 40 percent of our exports, and as Sabnavis highlighted, they could potentially be hurt more by trade tariffs. “We don’t know what happens to the MSME… they’re going to be affected a lot in case there’s any kind of an embargo, any kind of an impediment which comes on account of [trade tariffs],” he cautioned.
After nearly five years, the Reserve Bank of India cut the repo rate by 25-basis points to 6.25 percent. Most economists have pencilled a further rate cut of up to 50 basis points this year. The rate-setting panel unanimously voted for the rate cut to give growth a chance because they expected inflation to continue to trend downwards.
“I don’t think any bank has actually lowered the rates… because if we look at the situation today, we have a deficit of liquidity in the system, which means banks do not have enough funds… I’m quite sure that, during the next couple of policies, the RBI governor is going to say, we have lowered the repo, why is it that banks are not transmitting it,” Sabnavis said.
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Manian shared a banker’s perspective on the liquidity crunch in the system. “The way I look at it is that, hopefully, with the easing measures already implemented by the RBI… and if the markets do well, [with] the return of the foreign capital into the stock markets, maybe over a quarter or two, we will see liquidity back,” he said. “And if that happens, the deposit side looks better. So, I would say, overall, the banking sector is poised for taking higher risks if private capex does come back.”
Manian believed that the banking sector was overall well poised in terms of its capitalisation and overall asset quality. He was hopeful of an uptick in credit growth. “One is hoping that happens over the next few quarters, and if that happens, I think we have a positive outlook going forward.”
Domestic GDP grew by 6.2 percent in the December quarter versus 5.6 percent in the previous quarter. “I think things are going to be happening in an incremental manner. So, there will be investment taking place. Consumption is also going to improve,” Sabnavis concluded. “I think all these factors will fit together. In this entire environment of uncertainty, which we are talking of in terms of the tariff wars, I think we can manage GDP growth in the region of 6.5-7 percent in FY26.”
(From Left to right) Forbes India’s Associate Editor Neha Bothra, comprised KVS Manian, MD and CEO, Federal Bank; Rajesh Jejurikar, ED and CEO (auto and farm sector), Mahindra & Mahindra; and Madan Sabnavis, chief economist, Bank of Baroda. Image: Amit Verma