Macro Economic Survey 2016: 7-7.5% GDP growth target credible and realistic, says HSBC

Pranjul Bhandari, Chief India Economist, HSBC, says inflation could be much higher—almost 5.5 percent— than the 4.5-5 percent forecast in the survey.
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Feb 27, 2016, 04.50 PM | Source: CNBC-TV18

Macro Economic Survey 2016: 7-7.5% GDP growth target 'credible and realistic', says HSBC

Pranjul Bhandari, Chief India Economist, HSBC, says inflation could be much higher—almost 5.5 percent— than the 4.5-5 percent forecast in the survey.

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Macro Economic Survey 2016: 7-7.5% GDP growth target credible and realistic, says HSBC

Pranjul Bhandari, Chief India Economist, HSBC, says inflation could be much higher—almost 5.5 percent— than the 4.5-5 percent forecast in the survey.

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Pranjul Bhandari (more)

Chief India Economist, HSBC |

The Macro Economic Survey 2016-17 tabled in Parliament today presented a picture of cautious optimism for the next fiscal: underlining a GDP growth target of 7-7.75 percent while recognising that the government's fiscal situation remains tight.

The GDP growth forecast was more tempered, compared to last year when the report forecast 8.1-8.5 percent GDP growth in FY16 and had talked about the possibility of double digit growth in the years ahead.

Commenting on the Survey findings, JPMorgan Economist Sajjid Chinoy says the FY17 growth forecast was "significantly realistic" compared to last year.

This should help increase the government’s credibility, he said. 

Pranjul Bhandari, Chief India Economist, HSBC, agreed, saying the Survey's forecast is in line with HSBC's own estimates of 7.4 percent.

However, she said that inflation could be much higher—almost 5.5 percent— than the 4.5-5 percent forecast in the survey.

Samiran Chakraborty, Chief Economist, Citi, said that he expects the government to hike taxes this Budget.

He also spoke about the rupee, saying while it saw weakness in 2016, it had been stable lately and added that he doesn't see any significant depreciation going forward.
The bond market rallied on the back of open market operations (OMO) carried out by RBI and forecast of achieving the fiscal deficit target of 3.9 percent in the Economic Survey, says Jayesh Mehta of Bank of America.

CNBC-TV18 also spoke to Arvind Virmani, Former Chief Economic Advisor and Siddhartha Sanyal, Chief India Economist at Barclays.

Below is the verbatim transcript of Arvind Virmani, Sajjid Chinoy, Samiran Chakraborty, Pranjul Bhandari & Siddhartha Sanyal's interview with Latha Venkatesh, Reema Tendulkar & Ekta Batra on CNBC-TV18.

Latha: What is your comment on the FY17 inflation forecast between 4.5 percent and 5 percent?

Chinoy: Before I go there, I just want to say, compliments to them for being realistic. In the past we have seen too many economic surveys being so aspirational in terms of the growth numbers and I will tell you why it matters. A) I think it builds credibility but B) it drives your nominal gross domestic product (GDP) number and to the extent that you overestimate real GDP growth and therefore nominal GDP growth.

There are two problems with that later in the year because typically what governments will then target is an absolute number of the deficit. So later in the year, if nominal GDP growth were to surprise on the downside, then you have worries about fiscal slippage and it is the nominal GDP growth on which you base your tax buoyancy and your tax collections grow. So, there are very real budgetary implications for being realistic and full credit to the economic survey.

What the larger message here is, growth of 7-7.5 percent means it is a slowdown next year compared to this year which is very realistic. India got massive terms of trade shock last year that will roll off this year.

Latha: How would you read these statements, credibility and optimality requires sticking to 3.5 percent and then my next question, if they indeed stuck to 3.5 percent, unscheduled rate cut possible?

Chinoy: So far what you have read, full marks to the economic survey. They have been realistic and I think the 3.5 percent will be music to the bond markets. The bond markets had a very rough couple of months, I think this will be a positive surprise because market had basically priced in some slippage, so, there will be a surprise here.

I think the question is going to be how this gets done? We would hope that 3.5 percent is accompanied with realistic assumptions on the tax side and some part of the pay commission is pushed out which is what happened in the Railway Budget. Our sense on the Railway Budget was you could have some special allowances that were pushed out which ties in with Pranjul’s point.

So to the extent that some of these wages are pushed out, you reach a number of 3.5 percent, very positive but I think what you may get with that from your earlier statement is that they will rethink the fiscal roadmap going forward. So what the government may do is, stick to 3.5 percent for next year but then say that we may take a couple of years to go to 3 percent and that is the balance you will strike between growth and fiscal consolidation.

In terms of monetary policy, we do expect a rate cut in April. It is possible that that could happen before. The inflation numbers in the last two months have been a little on the upside, core has been coming down, food is surprised to the upside but yes I would be agnostic about timing. I think it could come either in the April review or it could come shortly after the Budget. However, the fact that you stick to 3.5 percent and then you get a rate cut is exactly the right policy mix that the investors will be looking for.

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