Beware the three bears now that Goldilocks has exited

livemint.com:

reality is that China is unlikely to be a counterbalance to a potential slowdown in developed economies this time, unlike during the 2008-09 global financial crisis. But despite a slowing China, geopolitical risks and adverse climate events are providing a floor for global food and energy prices. The third bear is India’s domestic consumption growth.

Private consumption has taken a backseat to investments in India’s post-pandemic recovery, and a divergence between anecdotal evidence of buzzing activity in malls as well as airports and weak private consumption in GDP growth data suggests that our recovery remains K-shaped—with the bottom of the household pyramid facing more stress. The rural economy had a tough year battling higher inflation last year, and risks are rising that the food price resurgence could dampen rural demand more. Investments, the key driver of growth, remain dependent on the government’s capital-expenditure push, which could take a backseat as elections near, while a private capex revival is unlikely unless there is a broad-based consumption recovery.

Elevated headline inflation and slower growth could result in a stagflation-like environment, presenting a devil-and-deep-sea dilemma for the Reserve Bank of India (RBI). On one hand, its inflation targeting credibility is at risk if inflation remains above its upper tolerance limit of 6%. On the other hand, fighting off food price inflation by raising interest rates when consumption demand is tepid could result in even weaker growth.