New Delhi: India has managed to cushion the economy from higher energy prices and AI fears, so the story should not be one of concern about India losing its way in a world of AI, but one of remarkable resilience and opportunity, according to a new HSBC Global Investment Research report.
The AI frenzy has sucked capital into a narrow sector and a few, selected economies. Returns, at least for a while, have been stunning. But, given recent jitters, it’s worth to widen the perspective again.
“That’s where India comes in, bypassed by much of global capital in recent quarters. The challenges, in investors’ minds, are easy to recount: the absence of a vibrant AI hardware sector, the risk that services exports might suffer as AI is adopted more widely, and the spike in global energy prices, which historically hit India hard. Well, time for a rethink,” said HSBC economists.
India’s economy has weathered these challenges so far with remarkable ease. After a little pull-back earlier this year, around the height of the conflict in the Middle East, activity has bounced back.
“For one, India has managed to cushion the economy from higher energy prices, with the current account deficit not blowing out as in previous such episodes. That is in part being helped by the continued, robust rise in services exports, which have yet to show, in aggregate, an adverse impact from AI,” the economists noted.
Meanwhile, private credit growth and corporate revenue growth have rebounded, car sales are strong, and government infrastructure spending continues to push higher.
The export rebound is especially noteworthy, occurring in a global environment where most trade is driven by AI hardware, a sector in which India is not a major player.
Given that world trade in non-AI goods has largely stalled, this suggests that India is gradually gaining market share, said the report.
On the goods side, shipments have gone sideways for a few years after a ramp-up during the pandemic. But note the acceleration in the last few months. Meanwhile, services exports continue to shoot up in a straight line and are not far off goods exports on an annual basis.
“This suggests that worries over AI derailing the sector are overdone. Sure, the technology will make some jobs, like call centres, obsolete, replacing workers with bots, but it opens other doors by raising the productivity of Indian workers in fields that they previously struggled to compete in,” according to the report.
On the domestic side, activity has picked up too. Accelerating credit growth, for example, hints at stronger investment spending to come, including private firms that have for years lagged in the capex cycle.
More granular data also shows that credit growth to corporates – larger firms usually pursuing big capex projects – has accelerated particularly strongly, said the report.
(IANS)
