Q: What did you take away from the G20 meet, and do you think that investors across the world might be mildly disappointed with the outcome?

A: It’s difficult to come out with a concrete action item immediately after this meeting which has happened for the first time but if you just push back and look at the way they come about announcing things, I was a bit positively surprised. They have been fairly clear on the agenda going forward. There is a detailed action plan attached in the text, so it’s not been some general statements, they have tried to be as far as possible be more clear in terms of how they want to go about.

I read three things in terms of the action items from there. Firstly, they are advising everybody to be more focused on loosening their monetary policy. Secondly, they are also advising people to be focusing on fiscal stimulus. An IMF managing director was out in the press later advising 2% of global GDP as a fiscal stimulus which he thinks probably could be right. Thirdly, they are encouraging the IMF and the World Bank to be more lenient towards the emerging market space, which has been completely stranded for funding. So, these three messages were pretty loud and clear. There are a lot of other things in terms of regulatory change which they want to see but those are more hazy. There is no clarity as to when exactly and how the country would implement that. So I was frankly positively surprised on the G20 action. It can’t be a clear cut immediate fiscal boost announced by all of them together on the same day that was never going to be possible anyways.

Q: Do you think we will see something by way of concrete action by the time we wrap up this year. What way do you think they will lean? Will it continue to be stimulated rate cuts across the globe or do you think it is going to be more piecemeal?

A: The monetary stimulus is kind of now going to be less so much of a focus, it is going to be more fiscal stimulus and they will encourage each state to do it according to their capability.

I do not think it would be possible for them to come out with a coordinated fiscal stimulus. It is possible for a few countries in the developed world to do that but for the emerging market space to come together and do some more fiscal stimulus I think will be difficult.

So they leave it on each country to do it and that is why there is a general statement. Finally, implementation will be left with each and every country. They will take a stock of all of these things on April 30 when they meet again.

Q: How are things looking for us? Since we last spoke have you had reason to scale down your targets for India GDP (Gross Domestic Product)?

A: Last week, we cut our GDP growth for India for twelve months ended March 2010 to 5.7% from 9-9.5%.

Q: The concerning line in the report is that the duration of risk aversion in the global financial markets as you see it is going to be longer than estimated, how long do you think it’s going to be?

A: My personal view is that this is possibly a two year halt. We are all connected to the US and no matter how much we want to believe in our own story, there was a big role which was played by the global financial market in India’s strong GDP growth. The US has a complicated situation now where a 30 year debt super cycle is reversing. The debt to GDP is 350% and it’s not going to be easy to come back from there with just a 6-9 month slowdown.

Morgan Stanley is looking at 1.9% global GDP growth in CY09. To come back to 4% to 5% level of GDP growth from there will not be so easy. It’s going to take at least two years before we get the revival in the risk capital environment being allocated to India liberally the way it was in 2007.

Q: Your 2009 GDP target is down to 5.8% that is surely one of the lowest estimates. What are you basing that on, a very sharp drop off in industrial production over the next few months?

A: If you look in terms of the components, we are looking at a very sharp fall in the investment spending. The reason is it is almost unfortunate that the funding has stopped overnight.

If you look at the macro-funding data for India until this disruptive fall occurred in the global financial market, the corporates were collecting about 20% of GDP in terms of funding through various sources including internal accrual.

A fairly large chunk of it almost 8-9% of GDP was coming from the international market place. Now that has almost come to a grinding halt and that is what will cause a very sharp deceleration in investment spending in the country which is what explains that low GDP growth number.

So consumption was already decelerating particularly the consumption through leveraging but the investment spending line is where we are now building in a much sharper downtick than what we had earlier.

We were expecting about USD 30-40 billion of capital flows to come into India in twelve months ended March 2010, which is approximately calendar year 2009 and now as the data appears it could be almost like anywhere between USD 0 (zero) to 10 billion or so.

Infact, if you look at the data for the last five months since FX reserves have peaked out in end May. The total outflow in India in foreign exchange reserves has been about USD 40 billion according to our estimates. From that about USD 10 billion or so appears to be actual capital outflow.

So the delta in terms of the capital flow availability of the country, which was at the peak of about USD 110 billion is now in the last five months run rate appears to be minus USD 10 billion. So when you cause a liquidity gap of USD 120 billion – a lot of it is risk capital – there is bound to be a big negative impact on the investment spending in the country.

Q: The sinking feeling after this fortnight is you are seeing simultaneous recession, Japan, Europe, US, all of them have gone into that phase and at this point given that situation do you think that the risk is the GDP target you have set out for us could have to be scaled down a lot?

A: I wouldn’t say scale down a lot but the downside risks do exist to the extent to which there are downside risks to global growth estimates. The global growth trajectory that we are seeing now is very much similar to what we had seen in 1984, 1987 to 1990 in the US, which had seen a trough of 1.5% in global growth, we are right now forecasting about 1.7%. So we are just about there in terms of that cycle which could be compared with the current cycle but there is downside risk from here but not a whole lot for us to say that this GDP growth of 5.7% could eventually turn out to be 3% but if it’s 5.7% for FY10 then it could possibly be seen the downside risk of just about hitting below 5%.