M Govinda Rao, Director of National Institute of Public Finance and Policy (NIPFP) and member of Economic Advisory Council (EAC) to the Prime Minister, admits that we are in an industrial recession given the IIP numbers that came in.

Here is a verbatim transcript of the exclusive interview with M Govinda Rao on CNBC-TV18. Also watch the accompanying video.

Q: The August Index of Industrial Production (IIP) has come in at 1.3%. Do you think all bets are off on the 7.5% growth that we have been talking about — should we look at a much more realistic number, say, below 7%?

A: This is a significant deceleration. We all had a fear that there would be an industrial recession and maybe we will have to revise the growth forecast now that there is a global financial crisis and a serious liquidity crunch in the Indian situation.

Q: Industrial recession is the word you have used. Would you stick with that word the next time you are going to find a contracting number?

A: Yes. We are in an industrial recession.

Q: What will be the official position of the Economic Advisory Council (EAC)? Will you all — in your next meeting — actually use the world recession and what would your numbers be?

A: I cannot say what the official position of the EAC is.

Q: The industrial growth and the Gross Domestic Product (GDP) number would now look very different from that 7.5%. Is it just sub-7%, is it sub-6%?

A: Let us not forget that it was the EAC, which actually came out with less than 8% (GDP growth rate). We were the ones who brought down the growth rate below the 8% level.

Q: So as an economist even if I don’t take the council, what is your sense — are we talking sub-7% or are we talking sub-6% at this juncture?

A: We will need to reduce the growth forecast but even with the service sector and all the attendant problems, I would still think that around 7% growth should be possible to reach. For the next year though, we are going to have a much more serious problem.