Steel & cement showing signs of revival, local demand strong: Chawla
The Economic Times, April 13, 2009, Page 9
After taking a series of steps to help the economy sail through the worst times in several decades, the government is now gauging how the economy is responding. Ashok Chawla, secretary, department of economic affairs (DEA) in the finance ministry, talks to Soma Banerjee, Deepshikha Sikarwar and Gireesh Chandra Prasad of ET about the economy’s prospects as well as the decisions taken by world leaders at the recent G20 meeting. Excerpts:
Have we started seeing the fruit of the measures taken by the government to boost growth? Your estimate of the growth in 2008-09 fiscal?
In some sectors such as cement and steel, we have seen clear signs of revival. We have not seen too much decline in domestic demand except in real estate, which has different structural issues.
The affected sectors are those that are dependent on exports such as gems and jewellary and apparels. If exports, accounting for one-fifth of the country’s GDP, are affected, then it is bound to have impact on industrial output. Had our economy been more export dependent, the impact would have been worse as in the case of China, where two-fifth of economic output is dependent on exports. We may post a growth of 6.5% or slightly more in 2008-09 fiscal. Public investment in the fourth quarter of the last fiscal grew significantly due to the economic stimulus packages. We expect the fourth quarter of the last fiscal to do better than the third.
What about the current fiscal?
The negative sentiment about global growth is coming from bodies like the OECD and the IMF. That does not apply to India. Growth may be flat or of modest in the first two quarters of 2009-10. By the second half of FY10, economic recovery would decidedly take place. Substantial improvement in growth is expected in the third quarter, ending December. This fiscal, we expect to record a more than 6% growth.
Can we expect further measures to stimulate the economy in the coming days?
That is a decision to be taken after the elections. The model code of conduct, however, does not prevent the government from taking decisions which are necessary for the nation’s overall welfare in consultation with the Election Commission. We don’t see a real need for further steps (before the new government is in place) after having initiated two stimulus packages.
Credit is key problem faced by the industry. Banks have not cut lending rates commensurate with the RBI’s policy rate cuts. Can the government nudge them to cut lending rates?
Bank lending is based on their risk perception. Their instinct is to ensure that they do not burn their fingers. Besides, the average cost of funds for banks have also not come down. That’s why despite the sharp decline in RBI’s policy rates aimed at reducing the cost of funds, there has not been a corresponding reduction in bank lending rates. However, there are clear signs that the situation is changing. Banks have begun to offer lower interest on bulk deposits in the last three months. This is a clear indication that we will see bank lending rates move southward in the coming days. The authorities cannot put pressure on banks to reduce rates as lending is a commercial decision based on their risk perception. Besides, the situation is not so bad for the government to think of any interest subvention.
The government itself will be a big borrower in the current fiscal. Will it not crowd out private sector investments? Is overseas sovereign borrowing option being looked at?
The government borrowing programme is going to be large and there could be some pressure on interest rates. We’re looking at various other options like open market operations, market stabilisation scheme to ensure that private sector investment is not crowded out. There is no plan for an overseas sovereign borrowing.
Are there plans for private placement of debt with the RBI?
Monetisation of fiscal deficit is not allowed under the Fiscal Responsibility and Budget Management (FRBM) Act except for exceptional circumstances. The government is committed to the FRBM Act. The increase in fiscal deficit was necessitated by the circumstances that the country went through. Our objective is to revert to the path of fiscal consolidation at the earliest. If it is not possible in 2009-10, we will certainly do that in 2010-11. There is certainly no need to think of monetisation of public debt.
Do you propose to take any action on tax havens as discussed at the G 20 meeting?
At the G-20 meeting, there was a discussion about non-conforming, non-cooperating jurisdictions. We follow OECD’s template for all our bilateral tax treaties for sharing information.
The Economic Times, April 13, 2009, Page 9
After taking a series of steps to help the economy sail through the worst times in several decades, the government is now gauging how the economy is responding. Ashok Chawla, secretary, department of economic affairs (DEA) in the finance ministry, talks to Soma Banerjee, Deepshikha Sikarwar and Gireesh Chandra Prasad of ET about the economy’s prospects as well as the decisions taken by world leaders at the recent G20 meeting. Excerpts:
Have we started seeing the fruit of the measures taken by the government to boost growth? Your estimate of the growth in 2008-09 fiscal?
In some sectors such as cement and steel, we have seen clear signs of revival. We have not seen too much decline in domestic demand except in real estate, which has different structural issues.
The affected sectors are those that are dependent on exports such as gems and jewellary and apparels. If exports, accounting for one-fifth of the country’s GDP, are affected, then it is bound to have impact on industrial output. Had our economy been more export dependent, the impact would have been worse as in the case of China, where two-fifth of economic output is dependent on exports. We may post a growth of 6.5% or slightly more in 2008-09 fiscal. Public investment in the fourth quarter of the last fiscal grew significantly due to the economic stimulus packages. We expect the fourth quarter of the last fiscal to do better than the third.
What about the current fiscal?
The negative sentiment about global growth is coming from bodies like the OECD and the IMF. That does not apply to India. Growth may be flat or of modest in the first two quarters of 2009-10. By the second half of FY10, economic recovery would decidedly take place. Substantial improvement in growth is expected in the third quarter, ending December. This fiscal, we expect to record a more than 6% growth.
Can we expect further measures to stimulate the economy in the coming days?
That is a decision to be taken after the elections. The model code of conduct, however, does not prevent the government from taking decisions which are necessary for the nation’s overall welfare in consultation with the Election Commission. We don’t see a real need for further steps (before the new government is in place) after having initiated two stimulus packages.
Credit is key problem faced by the industry. Banks have not cut lending rates commensurate with the RBI’s policy rate cuts. Can the government nudge them to cut lending rates?
Bank lending is based on their risk perception. Their instinct is to ensure that they do not burn their fingers. Besides, the average cost of funds for banks have also not come down. That’s why despite the sharp decline in RBI’s policy rates aimed at reducing the cost of funds, there has not been a corresponding reduction in bank lending rates. However, there are clear signs that the situation is changing. Banks have begun to offer lower interest on bulk deposits in the last three months. This is a clear indication that we will see bank lending rates move southward in the coming days. The authorities cannot put pressure on banks to reduce rates as lending is a commercial decision based on their risk perception. Besides, the situation is not so bad for the government to think of any interest subvention.
The government itself will be a big borrower in the current fiscal. Will it not crowd out private sector investments? Is overseas sovereign borrowing option being looked at?
The government borrowing programme is going to be large and there could be some pressure on interest rates. We’re looking at various other options like open market operations, market stabilisation scheme to ensure that private sector investment is not crowded out. There is no plan for an overseas sovereign borrowing.
Are there plans for private placement of debt with the RBI?
Monetisation of fiscal deficit is not allowed under the Fiscal Responsibility and Budget Management (FRBM) Act except for exceptional circumstances. The government is committed to the FRBM Act. The increase in fiscal deficit was necessitated by the circumstances that the country went through. Our objective is to revert to the path of fiscal consolidation at the earliest. If it is not possible in 2009-10, we will certainly do that in 2010-11. There is certainly no need to think of monetisation of public debt.
Do you propose to take any action on tax havens as discussed at the G 20 meeting?
At the G-20 meeting, there was a discussion about non-conforming, non-cooperating jurisdictions. We follow OECD’s template for all our bilateral tax treaties for sharing information.
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1 comment:
This article is very timely and relevant. As I quote Cameron Muir, an economist, "Home sales are unlikely to fall much further..That being said we expect home sales not to decline much further."
But it's never too late, with the right business plan set up, it will lead to valuable outcome. This is what most counselors would give as an advise.
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