Monsoons so far this year have been much better than what they were in 2009, when rainfall was below average, said Saumitra Chaudhuri, former member of the Planning Commission in a discussion on the economy on CNBC-TV18. He said the economy was poised to recover as execution of projects would pick up in the second half of this fiscal.
Speaking in the same discussion, Arundhati Bhattacharya, chairperson, SBI said pressure on account of bad loans was beginning to ease. She said the iron and steel cycle was beginning to change for the better. She said there were agencies which could manage assets of companies like Bhushan Steel , whose vice-chairman Neeraj Singal has been arrested by the CBI over bribery charges. A consortium of banks including SBI has loaned around Rs 40,000 crore to Bhushan Steel. Bhattacharya said the consortium would be meeting early next week.
Below is the verbatim transcript of Arundhati Bhattacharya and Saumitra Chaudhuri’s interview to CNBC-TV18’s Latha Venkatesh and Sonia Shenoy and today’s guest Editor Raamdeo Agrawal:
Q: Are you getting a sense that as an economy we have troughed out and that it will only be a matter of time that we hit that 6-6.5 percent growth?
Chaudhuri: I think the last couple of years we could say that we had actually troughed out and we are at the bottom of the heap, not getting any worse but there was no sign of improvement.
In the last quarter if you look at the industrial output numbers there have been some signs of improvement and if you look at the Q4 numbers for all companies put together, there is something encouraging about profit growth. So yes perhaps I think we are at the turning point, we are at a revival point. I think there is also an improvement in the confidence conditions but after three years of going very slow, problems tend to accumulate and expecting that those problems will go away overnight may be unrealistic. So it is going to happen but it will take a little bit of time. Can we get to about 6 percent may be in a year’s time, I think that is a realistic proposal, we could get it even earlier, it depends on how the government leads from the front on the areas of infrastructure investment in second half of this year.
Q: Can inflation play spoilsport again? We saw those ugly vegetable numbers for July, they have probably subsided but my point is will this again break the pace of growth, break the pace of the nascent recovery and secondly really is there scope for the governor to cut rates and can growth come even at a repo rate of 8 percent and probably a bank base rate of 9.5 percent?
Chaudhuri: Growth comes because people want to make their own life better, that is an autonomy in the hands of 1.2 billion people of this country and they will improve matters, they will push against whatever obstacles that might be in their way. It is up to the largest system to wonder whether you are going to facilitate this process or you are going to make it a big tougher. So growth will recover one or the other way.
As far as prices are concerned, fresh vegetable and fresh fruit prices have played spoilsport but going forward I think there is a degree of uncertainty regarding cereal prices because of the monsoon. Monsoon situation by the way in 2014 is much better than it was in the comparable time in 2009. So we shouldn’t see that kind of large output losses that we had in 2009. That may speak well for what might happen with the prices. But I think food prices is a dicey issue, food prices are difficult to control from usual conventional monetary point of view but how do you actually control inflation through monetary policy; by destroying demand right.
Now that works in the case of manufactured goods, it doesn’t quite work like that in the case of food prices. I don't know what is the demand that he is going to destroy in an economy which has been growing sub 5 percent. Therefore, these are questions that are not easy to answer because monetary policy also plays a signalling role but one has to take a holistic view but as I said growth will recover one or the other way. The two basic agents, individual households, young people and corporate sector will push growth forward. It is up to the government, it has certain amount of autonomy in trying to facilitate the process. I hope he does so in the second half of this year.
Q: If we do have a pickup in growth then that would of course help the asset quality that banks are being burdened under as well and in this quarter too we have seen some amount of pressure subsiding especially for banks like your own. What is the sense you are getting about how much growth could recover too and whether the worst is over as far as asset quality pressures are concerned for banks?
Bhattacharya: I agree with Dr. Chaudhuri that growth will come willy-nilly whether you reduce the rates of interest or not and we have been seeing that from the last quarter of the last financial year. You have seen actually the cycle in iron and steel turning and in a few other areas as well. And yes asset quality the pressures are definitely down, it could be the result of a number of steps that we have taken including the regulator has taken and that is to determine the stresses at the very beginning and bring about some kind of a discipline amongst the lenders and the borrowers to ensure that things don't get worse.
But it is also helped by larger top line numbers and those numbers we believe will continue to increase. What has been a further game changer has been the fact that the capital markets have been supportive. People have been able to raise equity and we are also seeing a lot of demand for assets that is the sale of assets, mergers, consolidations. So these are other things that sort of help in reducing the pressure on the asset quality. So going forward I do believe that we are going to see the bottoming out of this cycle very shortly and we should begin to see the upward movement. The government can be a facilitator and if it is a true facilitator and we are seeing many small steps being taken in order to facilitate this, if that continues then I do believe that the upturn will come sooner.
Source: .moneycontrol