The positivity on the Indian economy that has been reflected by means of the July IIP numbers will be sustained if the auto sales and the exports continue to be consistent, says Samiran Chakraborty, head - Research (India) Standard Chartered Bank.
Speaking to CNBC-TV18, soon after the July IIP numbers were released, Chakraborty says he had actually expected a better number than the 2.6 percent that has come in,.
“For this particular month, all important macros like car sales, infrastructure index and exports had done reasonably well so that is why we were confident that we were going to get somewhat better number,” adds Chakraborty.
C Rangarajan, chairman, PMEAC too added into the optimism. He says, "Going ahead I believe that food inflation will come down whatever numbers or whatever things that we have seen in agriculture is a good development. Monsoon has been extremely good, reservoirs are full. Therefore I believe that food inflation will trend downwards and that will have an impact on CPI in the coming months."
Below is the edited transcript of Chakraborthy’s interview to CNBC-TV18.
Q: That is the kind of number we have got – 2.6 percent – what is your sense - sustainable as Rangarajan believes?
A: Our own estimate for July’s industrial output was 2.2 percent so I can’t say that I am surprised.
Q: But do you think it is sustainable?
A: We have to see a couple of trends emerging. The first one is the improving export growth number. The other is the auto sales number that has been good for couple of months now.
We will have to see whether these two trends continue to stay like this in the coming months. On the export front, we are hopeful. Even if we do not get 11-13 percent kind of growth, atleast we will get some sustainable high single digit growth. If that is the case, then we are not going back to the zero percent IIP growth print but will stay in a low single digit print for sometime.
Q: I was doing a quick arithmetic of IIP numbers – the capital goods index that Rangarajan was talking about has risen from 221 index number in June to 271 index number in July – that is a 22 percent month on month increase – this looks a little too good to be true?
A: Capital goods have been notoriously volatile so I prefer not to forecast the capital goods way. One will never get the IIP right that way. We prefer using the simple tools of saying that a good proxy of consumption is car sales, a good proxy of investment side is probably the infrastructure index and export growth is another way of looking at some manufacturing which is neither fall in these two categories. These three would be my principle ways of looking at it.
For this particular month, all these three things had done reasonably well so that is why we were confident that we were going to get somewhat better number. But honestly, I can not explain the 22 percent capital goods movement month-over-month. It could be wires and cables which is the most notorious element in that segment.
Q: Do you think consumption is turning the corner at all?
A: The way to interpret this number is that the urban consumption is not doing well whereas the rural consumption is probably doing better. That is one way to look at this and this trend has been going on for a while now. Even last month, this was exactly the same trend and from our anecdotal evidence also, we think this might be a story which can continue for a while especially on the back of good monsoons and better agricultural prospects once the produce comes to the market.
Q: You saw that strong note that came into the conversation when Dhoot spoke about exports what is your sense – did economist worry too much with the rupee at 68.9 and the tight monetary policy- do you think winding down of GDP forecast towards 4 percent was a little hasty – do you think we might still finish above 5 percent ?
A: It looks unlikely. Given that a large part of our exports are also having imported inputs and the fact that we are still a trade deficit economy, it does not look like the exports will have that kind of an effect to bring it up above 5 percent.
If anything can bring it up above 5 percent, it is consumer demand and some trend in the capital goods sector. Firstly, if the consumer demand really picks up in rural areas post good harvest and if there is some trend in the capital goods sector with a lot of project approvals coming in which we are unable to pick out at this point of time.
Q: You think Rajan can ease this CRR rules or repo rules in some way ease on September 20?
A; I do not think so. I think it is too early to ease monetary policy. We are yet to see the WPI print and the exchange rate effect is going to be seen there. There also is a fear that we are about to issue CPI linked savings certificates. So, will the focus of monetary policy now shift more towards CPI is also unanswered question. In the middle of all this and currency still being extremely volatile, taking the guard down might not be the strategy that the new governor will adopt. I am expecting him to be cautious only.
Q: The monetary policy committee what are you expecting from them?
A: I see a roadmap on how India is developing. Financial markets can be more developed while keeping the flavour of India intact. I wouldn’t look for too much borrowing directly from the IMF Chicago model, but something which will probably suite India better that is what I have been looking for.