While Sajjid Chinoy of JPMorgan feels it is hard to see India's growth accelerate above 6 percent as fiscal consolidation, which impinges on growth, is going to be the focus this year. In addition to that, a wobbly global economy is not a great backdrop for the export market. The depth of the growth downturn has been unanticipated and was not expected to dip to 5 percent, says Atsi Sheth of Moody's. It is unlikely that there will be a jump in growth from 5 percent to 7 percent in a few quarters.
Looking at the positives, Naina Lal Kidwai says the repo rate being cut by the RBI by 25 basis points on Friday comes as a breather, and this should now translate to lower lending rates for the industry.
Below is the verbatim transcript of the discussion
Q: Let me get your reaction to Reserve Bank's (RBIs) policy decision, ratings agency Moody's has today said that the RBI rate cut was along expected lines. Speaking about the Indian economy, Moody's has also added that though, India's inflation and current account deficit (CAD) are still high, it does see India's rating outlook as stable. They have added a word of caution, the Moody's is saying that it expects India's growth downturn to extend. So on the back of what we have heard from the Reserve Bank governor today, are we past that downgrade threat where we currently stand with the economy. What measures the government has taken. Do you believe on that basis we are past the downgrade threat for now?
Seth: The depth of the growth downturn has been unanticipated. People didn't expect growth to go as low as 5 percent and also how this downturn extended and I think that is what perhaps took people by surprise. What we are seeing now is that again the bottom has been reached in terms of growth. There have been some policies to assuage the effect of the global financial crisis etc. But in general the recovery in growth will be slow and it will be extended. Policy action that have been taken in the last six months help, but they can't really turn on a light in terms of growth. Growth recovery will still be slow.
Q: Where do you then see growth for FY14 because we have got disconnect between what the RBI is projecting at 5.7 percent, the government is projecting anywhere between 6.2-6.7 percent. Where does Moody's view growth for Indian?
Sheth: Our growth forecast for FY14 is about 5.9 percent. It is just a little below 6 percent. Again, this is because of our base case forecast that this recovery is going to be slow. You are not going to snap from 5 percent to 7 percent very soon in a few quarters.
Q: Would you belong to the camp that is saying just under 6 percent or just about 6 percent or do you believe that government when it says that the RBI is being too pessimistic about growth?
Chinoy: It is hard to see growth accelerate above 6 percent. Let's understand the drivers. It is going to be another year with fiscal consolidation which is great for a sentiment, good for medium term prospects. But in the near term, fiscal consolidation impinges on growth. By all accounts, the global economy is still wobbly so we will not get too much on export growth. We know that the investment constraints continue to bind. So it is hard to see where this big acceleration in growth is going to be. In the past, the RBI has had to scale down their growth forecast a couple of times last year so I am not surprised that they have been a tad conservative. Our own forecast is in the 5.8-6 percent range. So I think we have to accept that it is going to be a slow and halting recovery later in the year. Until some of these structural issues are resolved, we run the risk of reflating the economy too soon.
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