Arvind Sanger on Why India May Not Benefit Even if the Fed Cuts Rates by 100 bps Between Now & December

Introduction

In a recent interview with CNBC-TV18, Arvind Sanger, Managing Partner at Geosphere Capital Management, expressed his belief that India may not benefit significantly from a 100 bps rate cut by the US Federal Reserve (Fed) between now and December.

Sanger argued that India's economic growth is primarily driven by domestic factors, such as government spending, infrastructure investment, and private consumption, rather than external factors like global interest rates.

Why India May Not Benefit

Sanger outlined several reasons why India may not benefit from a Fed rate cut:

• Limited impact on capital inflows: A Fed rate cut may lead to some capital inflows into India, but these inflows are likely to be modest and short-lived, as investors are also considering other factors such as India's fiscal deficit and inflation.
• Weak transmission mechanism: Even if there are some capital inflows, the transmission mechanism to Indian banks and businesses is weak. Banks are reluctant to pass on lower interest rates to borrowers due to concerns about asset quality and profitability.
• Domestic headwinds: India's economy is facing several domestic headwinds, including rising input costs, supply chain disruptions, and a slowdown in rural demand. These headwinds are likely to offset any potential benefits from a Fed rate cut.

Conclusion

Sanger concluded by saying that while a Fed rate cut may provide some temporary relief, it is not a panacea for India's economic challenges. India needs to focus on addressing its domestic issues and implementing structural reforms to achieve sustainable economic growth.

It is important to note that this is just one expert's opinion, and there may be other economists who hold different views. However, Sanger's analysis provides valuable insights into the potential impact of a Fed rate cut on India.