We expect positive growth from next quarter’ Buisness Line interview Nov 25, 2015

Though the growth of 3.6 per cent in the index of industrial production for September was disappointing, Madan Sabnavis, Chief Economist of Credit Analysis and Research, expects the same to be sustainable and be in the range of 4-5 per cent for FY16.

He is satisfied with the government’s performance and is confident that corporate results will not deteriorate from the December quarter.

What is your view on IIP growth going ahead?

The cumulative IIP growth for the first six months of this fiscal has been 4.4 per cent. This, I think, is reasonable given the base of 3 per cent in the same period last year and also for full year of FY15. More importantly, capital goods and consumer durable goods have shown positive movement upwards. I won’t say it is a great revival but definitely, it is a major improvement over last year. This also gives an indication that things are happening on the industrial front, which probably won’t get fully reflected in the current financial year. But hopefully, next financial year, we would see a more complete revival cycle taking place at a higher range and I see this being driven by both consumer and capital goods.

Is growth in consumer durables and capital goods sustainable?

 I am not too confident whether growth in consumer durables is sustainable as it depends also on how the rural incomes and spending behave, but the rise seen in capital goods is definitely sustainable as the government has been talking of spending a lot especially on roads and railways. I am focusing more on the government as the engine for this year as private capex will take time to pick up given the current capacity utilisation of 70 per cent as per data by the Reserve Bank of India. Normally, until the capacity utilisation reaches 80-85 per cent, private players don’t start investments in fresh capex.

Given the IIP growth in the first six months, do you feel confident about India’s improving growth prospects? 

Given the fact that for the last three years, we have seen very low industrial growth rate in the region of 2-3 per cent and lot of policy initiatives have been taken by the government, I am satisfied about what is happening presently though arguably, one would have been happy with a better growth rate.  But, there is may be less to cheer about as it is not a major turnaround. India has been used to growth rate in the region of 8-10 per cent (going by the new methodology juxtaposed on the earlier numbers). Today, it is in the region of 4-5 per cent, which is half of what the potential is. 

Are you happy with the government’s pace of work?

I think the NDA government has done spectacularly well in terms of doing what could be done. Expecting government to do more miracles is not possible at this stage given the fiscal constraints. Consumers are not spending because they do not have the purchasing power. The government is not spending because it has 3.9 per cent fiscal deficit target. And industry is not investing given the surplus capacity.

 There are no easy solutions to the economy and historically, economies take time to recover. It is always a U-shaped recovery and not V-shaped. 

Do you also see India Inc’s financial performance bottoming out from December quarter? 

Even if the September quarter witnessed a decline in sales for the fourth consecutive quarter, the ‘negative numbers’ have improved.  I am confident that things are not going to deteriorate from here in terms of pace of recovery. We could probably go in for positive growth from next quarter onwards.

The RBI policy meet is before the US Fed meet in December. What do you think it will do?

I think the RBI will opt for a status quo in the December policy since inflation has gone up and US Fed is definitely going to start increasing interest rates which will impact currency and foreign flows to India.  But by March, there could be a rate cut of 25 bps in a bid to spur growth.