Commodity-based inflation pretty much gone, says Nadir Godrej; Axis Bank CEO Amitabh Chaudhry cautious

Leading industrialist Nadir Godrej is reasonably sure that India’s retail inflation is under control and that the Reserve Bank of India (RBI) is not likely to raise interest rates by much going ahead, while private lender Axis Bank’s MD& CEO Amitabh Chaudhry is cautious about commodity inflation rising again as China opens up after another Covid-19 wave.  

“The commodity boom at least is largely over. A lot of the inflation was commodity-based in India and that’s pretty much gone and that’s why India’s inflation numbers are better. I’m reasonably sure inflation is coming under control and the RBI not likely to raise inflation rates by much,” said Nadir Godrej, Chairman & Managing Director, Godrej Industries.  

Third largest private sector lender Axis Bank’s Chaudhry said the country is definitely coming towards the end of interest rate hike cycle and that their view is that the RBI may raise rates by another 25 basis points. While some economists are also forecasting rate cuts by the RBI, Chaudhry says that may not be the case soon. “The thing worrying me is that while around the world we are seeing inflation trending down, inflation could be tricky as China is opening up. People are expecting stocking up to come back and commodity inflation to pick up all over again to some extent. Let’s see how that plays out,” he said.   

The country's retail inflation declined to a one-year low of 5.72 per cent in December 2022 from 5.88 per cent in November 2022. Their views come against the backdrop of the RBI hiking interest rate by 35 basis points to 6.25 per cent in December 2022 – the fifth hike in the ongoing financial year to tame inflation.  

In a freewheeling chat titled ‘How does Big Business see Indian performing in 2023 and Beyond?’, the two were in an exclusive conversation with Siddharth Zarabi, Managing Editor, Business Today TV, at the annual World Economic Forum in the snowy peaks of Davos, Switzerland. They shared their views on a range of topics such as India’s retail inflation, interest rate hikes by the RBI, rural demand, the benefits of cash transfers over subsidies, the clean-up of the banking sector, government owning PSU banks, China+1 strategy, change in consumption patterns, technology revolution as well as climate change.  

Though bullish about the overall economy and urban demand, the conglomerate and FMCG giant’s Chairman Godrej said rural demand is a bit slow, more so because of the lay of crops and the erratic monsoons previously.  “It will be very helpful if the government boosts rural economy. But I’m not a great fan of subsidies because they lead to a lot of inefficiency. I would urge the government to reduce subsidies and increase cash transfers which have a much bigger impact on the economy and much fairer and don’t have unintended consequences of overconsuming of goods unnecessarily,” he added.  

Godrej added that cash transfers will also help the people spend the money as they see fit, to which Chaudhry pointed out that the fears of the money being getting wasted on alcohol will get allayed by the coming of the RBI’s Digital Rupee initiative, which is currently in a pilot stage. “They will allow you to release the money for very specific purposes if you tokenise that money. That’s why the RBI and the government are pushing it. It’s obviously very early stages but with the kind of platforms the government has successfully created, I’m sure this will also play out.” 

On the global view about India set to benefit from the China+1 strategy in the long term but not being seen in the same league as China in the manufacturing space, Godrej said is India is definitely getting a lot of business which used to go to China but there are certain industries which India is not very good at such electronics and chip manufacturing. “There are many things China makes which India is not ready to make. PLI schemes will help with that. We are looking forward to the government helping with more PLI schemes. It will take time, but the benefits are being felt for India right now.” 

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