The Indian economy has shown greater resilience to the shocks of demonetisation and Goods and Services Tax and the growth has bottomed out, according to NITI Aayog Vice-Chairman Rajiv Kumar. The economist, who replaced Arvind Panagariya, says the only way to improve businesses and agriculture is to make them globally competitive. In an interview with BloombergQuint’s Contributing Editor Praveen Chakravarty, Kumar talked about bad loans, and the importance of coordination between the central bank and the finance ministry and much more.
Here are edited excerpts from the interview.
There are two schools of thoughts on the growth slowdown. One school of thought blames it on short-term shocks such as GST and demonetisation. The other thought is that growth has been anyway slowing down and this has somehow exacerbated some of the declines for long-term benefits. Which school do you belong to?
Clearly, to the latter. Although the data are not comparable, I do want to point out that the peak growth had come about thirteen quarters ago. My own way of looking at it is: the last two years of the United Progressive Alliance had begun to see a deceleration because of various factors. It transformed into the downswing of the business cycle, which has continued so far. It got impacted by the two big shocks: demonetisation and GST. Any economy in the world would have shown some impact to that shock. I think the Indian economy has shown greater resilience than what we have expected. This downswing is now bottoming out. July is the period when I think the upturn has begun or would have begun.
Then you do agree that there can be policy measures that can be taken to revive growth?
I should point to some green shoots, which prompted me to say this. Like the PMI in manufacturing hit its lowest in July at 47 and recovered close to 51 in August. The PMI in services was 47 and it recovered to 49 in August. The automobile sales have increased by 8 percent. Civil aviation is up by 16 percent year-on-year. Even the sales of the heavy commercial vehicles, which are very often considered to be a strong lead indicator, has started improving in India. These are the reasons why I think the growth has bottomed out. Also, because the first quarter—April-June period —saw a lot of de-stocking because of GST measures. We want to give a fillip to growth, yes, but more importantly we have to give a fillip to employment generation. That’s been the Achilles’ heel of the economic growth for last seven-eight years. That’s what is beginning to make a greater noise in the economy than just the GDP growth.
Let’s look at what’s holding up in the economy and what’s not, so that we can talk about what can be done. Clearly, what’s holding up is that it is only us who seem to be thinking that the economy is in doldrums because foreign investors don’t seem to share that view clearly, right?
It’s great. India’s growth story is holding up hugely abroad.
Why is that the case?
I think we are just being terribly impatient. We, perhaps by nature, are pessimistic. You can see in the FDI flows. They have been the highest—the cumulatively in the last 3-4 years it stands at around $256 billion. Therefore, our reserves are up; our rupee, unfortunately, is depreciating as a result of that. If we go anywhere abroad, you will find that India is a good investment story. But our private sector investment has not picked up in line with that.
The big conundrum is exports. Exports has been inexplicable in terms of its decline. As a share of GDP, it is at historic lows. Private consumption was holding up but even that has started to slow. So, perhaps some of the pessimism comes from reading these numbers.
Let’s go through each one because there is no generic answer. For exports, they declined over 2014-16 but have risen over 2016-17. And from last 12 months, they have seen an anemic but nonetheless a positive growth. Non-petroleum exports are below the 2013-peak but have shown a consistent increase in the last 12 months. Now that the global trade scenario is picking up, I hope we will improve. NITI Aayog has set up a taskforce for employment and exports just for this. What we are finding there is that you need far more granular policy support than a generic, one-size-fits-all or sort of like hammer swat a fly [policy]. Therefore, we are going into sector-specific issues to see what can be done. The second part—you talked about the investment slowdown. I agree, but a part of the credit offtake from the bank has been substituted by the greater bond markets. Corporate bond markets have probably raised close to Rs 8,000-9,000 crore or more. So there has been the substitution. The slowdown in credit offtake is largely confined to public sector banks. The private sector banks—like the HDFC, ICICI Bank—have continued doing better. There again, the banking sector problem is something we need to look at as: why was it precipitated or could it be avoided by relooking at some provisioning norms or relooking at the insistence to try and get to Basel III+I. That’s the investment cycle in the story. Finally, on the consumption: yes, it has begun to weaken but if my hypothesis is correct, it should have picked up now after July.
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Source: Global Economy