See FY13 GDP growth at 6.8%: BoAML's Indranil Sengupta

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Central Statistical Organisation (CSO) has pegged GDP growth for FY12 at 6.9%. Indranil Sengupta, chief economist India at BoAML sees FY13 GDP growth at 6.8%. "The recovery process for the economy will extend into the second half of the next year," he adds.

According to him, a Budget that balances both growth as well as fiscal discipline would qualify as a good Budget. "We are looking at a fiscal deficit of close to 6% next year. I don't think that these are times when you can cut the fiscal deficit," he adds.

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra . Also watch the accompanying video.

Q: What will the Reserve Bank of India (RBI) do? What are your expectations for Index of Industrial Production (IIP) and the Wholesale Price Index (WPI)?

A: We are looking at an IIP of somewhere around 3%. We think that inflation comes down to close to 7%. Apart from these data points, what will also weigh on the RBI's mind is the December quarter growth numbers. That will come on February 29. We are looking at something close to 6% there. So, given that growth is slowing, the RBI should cut rates on March 15.

Q: The other number that came out in the past couple of days has been the revision of FY12 numbers from the Central Statistical Organisation (CSO) at 6.9%. If it is 6.9% for the full year then the second half we should be averaging something close to 6.5%. So, the Q3 at 6% is not surprising. How does all this setup the numbers for FY13? From an average of 6.9%, how much better can it at all get in FY13?

A: I think the first half will be around 6.5%. For the market, a rate cut from the RBI could be a turning point. But for the economy until lending rates by banks come down, things are not going to get better. For the economy, these are really cruel months where the full blast of interest rate hikes is hitting them.

The recovery process for the economy will extend into the second half of the year. That said one very positive feature is that real cash demand, that is money from peoples' pockets adjusted for inflation, is beginning to bottom out. That's good news. It shows that the worst maybe getting over.

Q: I didn't catch the FY13 growth number that you would be working with at this point in time?

A: 6.8%.

Q: What you expect from the inflation trajectory? How exactly do you expect inflation to pan out possibly through 2012?

A: Our base case is that inflation comes down to around 6.5% levels by June. And then rebounds as you get oil price hikes, as you get power tariff increases and maybe some more coal price hike and then again comes down towards the end of the year. So, we see inflation going down now again rebounding in the middle of the year and then going off again.

One swing factor is when the government raises oil prices, for e.g., if the finance minister were to raise oil prices on Budget day, inflation would go up now from 7% to 8%. But then it would fall straight line down to 5.5%. So, the path of inflation into next 12 months will also be dependent on the political will and political timing of tariff hikes, oil price hikes and so on.

Q: What would qualify as a good Budget for you?

A: I think a Budget that balances both growth as well as fiscal discipline. We are looking at a fiscal deficit of close to 6% next year. I don't think that these are times when you can cut the fiscal deficit. You do that only at the peril of growth. But at the same time we should avoid any further fiscal slippage.