You had said the Index of Industrial Production (IIP) will touch double-digits by December but this has already happened. What are views on this
Yes. Basically it is because of base effect. I do not think it is going to be the same in September.
Will this IIP growth be sustained
Even if you take away the base effect, one saw three consecutive months of impressive industrial growth. This in itself provides a considerable amount of confidence. A single month is not a reliable indicator, but three consecutive months are. The only cause for concern is drought. Normally the effect comes a little later and people try to limit their consumption initially. But on the other hand, if NREGS activities pick up, then there will be an offsetting factor. It is not clear at the movement how this will work out, since there is no estimate on how much will be the loss arising out of drought amount to.
Has the economy bottomed out
I think we had bottomed out some time ago. When you talk about recovery in the Indian context, we have to think about it differently. For most of the other countries, recovery means crossing into the positive territory. In our case, we never went in to the negative zone. So there has to be a benchmark for what recovery is.
How do you assess the current recovery
If you look at it, the GDP growth rate of over 6% was the minimum that could have been achieved (in 2009-10). So now, if you rule out the effect of drought, it is possible to have an industrial growth of 6.5-7%.
What about the GDP
Nothing much can be said about that, unless we know what is going to happen in agriculture. Everything depends on how bad the effect has been on the kharif crop. As far as rabi is concerned, the signs are positive. Last year, Rabi fared well. A y-o-y comparison of the Rabi crop will show that we can expect a huge growth. It is quite likely to be in the normal range, which may be in the range of 2.5%-3%. So everything depends upon what is the damage on the Kharif crop.
What do you think is the worst-case scenario
The worst-case scenario for this year may be that the agricultural growth could be as low as -6.5%, though it will not pull down the GDP below 5%. If everything else remains ok, then we are talking about an 8 percentage-point knock in agricultural growth, which may lead to a knock of about 1 to 1.5 percentage points in the GDP. So, in the worst-case scenario, GDP growth could be 5.5% to 6%.
Can we expect better data collection once the amended Collections of Statistics Act is notified
At the moment we are stuck with the rules. We have drafted the rules and circulated them to all the ministries and states and have also got their feedback. We also redrafted the new rules and sent them to the law ministry. The law ministry has not cleared it yet. As soon as they do it, we will notify both the Act and the rules together.
How will the new data collection regime help
Basically, the idea is to prevent any misuse and duplication of the provisions of the Act. Coordination is extremely important, because any one, who is declared a statistics officer can issue notices under the Act. We do not want an entire bunch of fellows sending a bunch of notices to companies.
Are we done with expansionary policies
It is too early to say. Liquidity overhang happens because of a mismatch in demand and supply. If demand picks up, the overhang will automatically disappear. What everyone is looking at is, you have a deposit growth of 20% or thereabout and a credit growth of 14%. The issue here is not to lower the deposit growth. The issue is whether you can increase the credit growth. We are not talking about a credit growth of 28% or 29%, as was the case earlier. We are now talking of a fairly normal credit growth. If you are talking of an economic growth of 7-8%, then the credit growth has to be somewhere between 20 to 22%. So, we are not talking of a 28-29% credit growth.
Can something be done to push (credit) growth Is a 14% credit growth not good
Well, it is not great.
What are your views on the October policy review of the RBI
I do not expect any change.
Do you think there should be a change in the interest rates
That more difficult to answer. It is for RBI to decide.
Social sector projects like NREGS generate a lot of data. What is your assessment of handling the data
They have a very decent MIS system. The ministry of rural development has always had a good MIS system. But the problem is that MIS is only as good as the quality of data fed into it. That is where the monitoring issue comes inyou do need some kind of cross validation and some of it is happening. NGOs are conducting a social audit and questioning the data. This is good.
What is your observation on government projects monitored by MOSPI
Cost overruns have come down dramatically from about 42% to 12%. This happened because of better management and more realistic estimates. But we have not seen a commensurate decline in time overruns.
Infrastructure is a key focus area of the government. What do you think of the government support to the sector
This should go on. There are limits to private sector participation in infrastructure. If you take a country like Britain, which is way ahead of us in this through PPPs, you will see that even there it is not 22-25%. So, one should not have the impression that only the private sector can be engaged in infrastructure. The question is how does one achieve a desirable balance It is happening in India. There was a setback last year. Infrastructure companies were hit badly because of the financial crisis.
Is there a need to revise the $500-billion infrastructure investment target
I think we need to be consistent. It has to come down. The Planning Commission has revised its GDP growth target in the 11th Plan to 7.8% over a five-year period. So, we are already down from 9%, which means the aggregate GDP will be much lower. One has to make all the back calculations and say that we are consistent.
What is the reason for low credit growththe lack of demand or prohibitive costs
First of all, we need to remember that when the crisis had struck last year, a lot of companies went into a mode where they started preserving cash balances. Everybody was trying to preserve liquidity, which means there are companies who now have surplus cash balances. They do not need to go to the market to finance projects. This is what the bankers are talking aboutthat we are willing to finance the projects but no one is coming forward. As far as costs are concerned, everything is driven by what will happen to inflation. At the moment, if we are looking at a rate of close to 0%, the cost is high because your real interest rate is very high. But the fact is that when you execute a project, you should not look at what is the cost today but rather at what the cost is during the lifetime of the project or that of the loan. No one in his right mind will assume that interest rates will stay close to 0%. Even if you estimate inflation at 3.5%, the interest cost for prime customers will be at 4.5 to 5%.
What is the status of the proposed Services Price Index
That is being worked separately. Eventually, there will be a convergence with the WPI.
Are there any further steps to stimulate growth
I think now we should wait and watch.