Industrial production entered the positive zone in July with 2.6 percent growth on account of improved performance of manufacturing and power sectors. Indranil Pan, chief economist, Kotak Mahindra Bank, is definitely surprised since he was not expecting such a huge positive in terms of capital goods numbers.
Going forward, he is still looking at around 4.6 percent in terms of overall GDP outlook. He says if export numbers remain consistent then the drag on overall GDP from net trade could be coming down.
Below is the verbatim transcript of Indranil Pan's interview on CNBC-TV18
Q: Your thoughts - 2.6 percent does it surprise you as well what is your trajectory? What is your full year estimate? Will you revise it higher?
A: No. To a certain extent it has surprised us definitely. We were not really expecting such a huge positive in terms of the capital good numbers. But the capital goods numbers tend to be volatile in a very significant way and any lumpy behaviour in terms of capital goods investments can actually jack up the numbers in a very significant way in one of the months.
Going forward, in terms of the overall GDP outlook we are still at around 4.6 percent which is competitively to a certain extent better than the street and we think that the export numbers if they remain consistent then the drag on overall GDP from net trade could be coming down because we would be expecting the input numbers to also reduce itself as we have been seeing in the overall trade deficit number.
Q: Do you think this is an export effect?
A: As I was pointing out that the export effect need not be forgotten at all. We had a huge amount of currency depreciation and now we are also seeing the rest of the world relatively showing better growth momentum which means that the emerging market exports need to be improved from the low levels that they were. I think it is positive for the overall manufacturing space and along with that if we have a decent agricultural year which is looking likely that should have a second round impact on the overall manufacturing goods production increase.
Q: What can Rajan do with these numbers- a 9.5 percent is at least lower tick, the trajectory is welcome on consumer price index (CPI) what can he do on September 20?
A: The choice would obviously be on what the Fed does. To that extent if one has looked at Bank of Indonesia they have increased the repo rate once again. So there is a sense of overall monetary tightness in the emerging markets space given the fact that quantitative easing is going to be tapered which necessarily means that the emerging markets would have to offer higher rates for the investors.
But the 9.5 percent does not really look to be a very comforting number. Yes, the food inflation has to a certain extent may have come down, but Rajan would also have to content with the increase in core inflation number that would come on the wholesale price index (WPI), so I am not really confident about the WPI following the same trend as the CPI. So, the significant wedge between the CPI and the WPI that we were seeing would probably be closing down. I don’t think given the currency market volatility that actually continues I don’t think there is any significant chance for Rajan to take away the MSF measure that is the key debatable issue at this point in time.
Q: What do you expect? I was thinking whether the Rajan committee of 2008 will find some reflection – inflation target, don’t look at any other variable only look at inflation. Monetary policy committee form of making decision- you think that will come?
A: No. I think it could be a fair assessment in terms of what is the likely event of corridor and all those issues are expected to come up. In that perspective whether the MSF at 10.25 is the right way of looking at the conduct of the monetary policy at this point in time so to a certain extent it might be a committee which could actually change the way we have been looking at the monetary policy and the corridor formation and whether we are at the upper end or the lower end of this corridor.