In an interview to CNBC-TV18, C Rangarajan, chairman, PMEAC says the various reforms (easing FDI caps, regular petrol/diesel /gas price hikes, etc) taken by the Government to boost the economy and the sentiment around it, will reap benefits in the second half of FY14.
After poor industrial production data that came in on Friday, C Rangarajan, Chairman, Economic Advisory Council to the Prime Minister of India (PMEAC) says industrial output will pick up in H2FY14.
He continues to believe that GDP will grow at 6 percent in FY14, but would remain slack in the Q1FY14.
Inspite of the weak macro data hurting sentiment, Rangarajan adds that investors will continue to find India to be an attractive investment option.
"The US economy has shown some recovery, but there is still a long way to go before it can be called a good recovery and therefore the QE may continue during the course of the year. Therefore, I believe that the capital flows will resume after the impact of the Fed statement fades off," he adds.
Below is the edited transcript of Rangarajan's interview to CNBC-TV18.
Q: The Index of Industrial Production (IIP) numbers for the last couple of months have been tepid. It is a volatile data point, but do you think there is some kind of downside risk to Gross Domestic Product (GDP) estimates for FY14 on the back of such tepid numbers?
A: The IIP numbers in the last two months have not been as encouraging. Infact, one had expected a pick up in the month of May, but it did not happen. It covered a very wide segment of industrial production. The impact of the various measures that we have taken in the last 6-7 months would be felt in the course of the year, particularly in the second half of the current fiscal.
Therefore, I expect a pick up in industrial production, particularly in the second half and there is a conscious effort to achieve the production and capacity creation targets in the key infrastructure sectors like coal, power, roads and railways. Frequent meetings are being held in order to overcome the constraints and difficulties. The public sector investment and production will act as a simulative economic growth in the current fiscal. I still expect the growth rate during the current year to be around 6 percent.
A: I think the first quarter is not going to be good. We have the data for the first two months and taken together it is only a very, very marginal increase. Therefore, we should not expect any strong results for the first quarter. My surmise is that the pick up will happen to some extent in the second quarter, but more particularly in the second half of the fiscal.
Q: Earlier, people were expecting that we will get some help from monetary policy in trying to stimulate growth. Do you find that the Reserve Bank of India (RBI) would be extremely constrained now from hereon to be cutting rates given what the currency has done, given that Consumer Price Index (CPI) inflation is still quite sticky?
A: These are forces operating in opposite directions. The slowdown in growth would require that we take some action to ease monetary policy, but on the other hand inflation continues to remain high. The retail inflation data which came a few days ago is somewhat disappointing. In the meanwhile, the currency has come under pressure, therefore, these are opposite factor pulling monetary policy in a different direction. Infact, even on the last occasion, the monetary policy stance was largely determined by the external sector considerations. Therefore, going ahead I think much will depend upon what happens to the pressure on the rupee.
Q: There is also an extremely weak export figure that we had to deal with on Friday. Are you getting worried that both legs in terms of what is happening with domestic demand pick up as also this exports disappointment is actually accelerating?
A: The trade deficit came down in June considerably as compared to the previous month. That was largely due to the decline in the import of gold. But we should expect some adverse impact on exports, since the advance economies have not shown any recovery. However, if the expectations are to be believed, the growth rate in the US is expected to be somewhat higher during the course of the year than last year. Therefore, we can see a pick up in exports later.
ADS BY GOOGLE
video of the day
Short term correction likely; US rate hike risk seen: Ambit