Adi Godrej, president- CII & chairman,Godrej Group told CNBC-TV18 that IIP data was very disappointing and that the RBI should cut rates fast. He explains that consumption continues to be good, though he disbelieves some aspects of the IIP data.
Godrej says that the data he was statistically unsure of the capital goods contraction in IIP data. He adds that it is tough to revive growth unless the RBI cuts CRR and repo rates. The CII president also says that the government needs to fight inflation outside of the monetary policy.
Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: We know that the economy has been slowing down, but these numbers have shocked the street, the government and the economists. Now even if anybody would question the veracity of some of the data, the underlying trend is increasingly negative and that seems to suggest that the picture is perhaps far worse then anticipated?
A: Yes, absolutely. These numbers were very disappointing and it's very important that the corrective action should be taken even faster than suggested.
Two things need to be done- the reform programme needs to be taken forward rapidly and the Reserve Bank should cut rates fast because unless that is done, the very disappointing situation in industrial production would be very difficult to set right.
Q: What are you seeing on the ground both in terms of pricing power as well as the consumption? Is consumption demand drying up significantly?
A: Consumption continues to be good and I expect it will continue to be so. However, the IIP data has to be treated with care as its statistical basis is questionable. There have been some errors in the past which have been corrected.
Some of the data doesn't seem right such as the estimation of nondurable consumer product growth at 1% and stating that capital goods growth has come down by 20%. I am not still sure of the statistical reliability of the IIP numbers.
But on an average, one has to be extremely careful and unless the Reserve Bank of India steps in with strong measures to cut interest rates and CRR. Otherwise, it would be very difficult to revive the economy.
Q: Do you believe that perhaps as early as June 18, the RBI is going to initiate another rate cut?
A: I do feel that there should be a rate-cut otherwise recovery will be very difficult. Inflation should be fought by other means. As it is I think inflation will keep coming down because global commodity prices are receding.
Q: So given the current scenario regarding the IIP data, the rupee and the lack of decision making in terms of pushing crucial reforms, do you believe that 7% GDP growth is going to be a target that will not be achieved for FY13?
A: For FY13, I don't think we will reach a 7% growth rate unless corrective action is taken quickly. The trend clearly indicates that it's a difficult target to achieve unless we bring in both reforms and rate-cuts.