Need CCI-like infra reforms more frequently: StanChart

Describing India as a growing economy, Samiran Chakrabarty of Standard Chartered says the Cabinet Committee on Investment's (CCI) move to clear stalled infra projects is a step in the right direction.

Speaking to CNBC-TV18, Chakrabarty says weak growth has kept the foreign investor community on the sidelines, hence, any growth-promoting measure is a positive. He underscored the need to have similar measures more frequently.
However, only announcing measures won’t be of any help. "Now, the next step will be to see how much progress is made on these announcements," absence of which will lead to investor fatigue. Below is the edited transcript of Chakrabarty’s interview to CNBC-TV18. Q: The market is getting nervous about this Food Security Bill. The earlier call was that by the time the Food Security Bill is there the diesel under-recoveries would have gone and in any case there would be some time before the bill is passed. Now we have a scenario where diesel under-recoveries are close to their all-time highs. The subsidy burden for this fiscal in terms of fuel itself is seen at Rs 1.4 lakh crore and on top of that you have this Food Security Bill. Do you think there is an imminent danger of a rating downgrade?
A: In the last few days the fears of rating downgrade has gone up and probably for good reasons. Clearly the macro situation remains challenging. The currency has weakened and on top of it there is now clear and present danger on the fiscal side. At this moment the market is hoping that the Finance Minister will be able to control this fiscal deficit as he had done last year. As we move in the year farther forward we will have a better sense on whether the same magic can be done this year as well. Q: With regards to the Food Security Bill do you think that there will be additional pressure on increased borrowing that the government might have to do?
A: I am not so concerned about the fiscal impact of the Food Security Bill for this fiscal year. Clearly, we are already almost six months into the fiscal year. By our estimation whatever additional money will be required for this fiscal year has been provided in the Budget for the Food Security Bill. The maximum impact will be felt from next year onwards and that is where the worry is. Market as well as rating agencies will be more concerned about that impact, not the impact particularly for this fiscal year. Q: In which camp are you right now? There is one camp which believes that the rupee is undervalued, heavily oversold and should see some recovery towards 61. There is another camp which believes that with the flip-flop from Reserve Bank of India (RBI) and the government this is now almost a clear path towards 70 in the near-term itself.
A: Both the camps can be right in a sense that in the near-term it is quite possible that the market continues in a panic mode, because clearly the market had run ahead of the fundamentals.
The current fundamental situation does not probably warrant rupee at 65, but a large part of this move is driven by global EM currency moves driven by some kind of a perception issue about India's problems. So, these can continue for a while more, but I will still stick to the view that fundamentally, there is no reason why we should have a run on the currency with 5 percent growth, 5 percent inflation, 5 percent fiscal deficit and probably 4 percent of current account. That is not a combination where you should be seeing a run on the currency. Q: Fiscal deficit is expected to be maintained at 4.8 percent. How much additional amount of spending will take place because of the Food Security Bill? Can you just take us through what the calculation would be on account to achieve the 4.8 percent target? Is it now imperative that a diesel price hike has to be factored in order to achieve 4.8 percent?
A: If the total Food Security Bill was implemented for the full year, it would have been about Rs 1.24 lakh crore. Since it is going to be implemented at best for about 3-4 months of the year, given that we still require some time for the mechanism to be in place, we are likely to see a number which is in the range of probably about Rs 1 lakh crore of food subsidy which is more or less budgeted.
The Finance Minister has budgeted about Rs 5,000-10,000 crore additional on the implementation of the Food Security Bill this year. So, I am not hoping that this will be breached.
The key component is actually the diesel subsidy. The under-recoveries have now reached a level where unless we do a substantial amount of diesel price hike, that would be a big drag on the fiscal deficit. Under-recoveries at more than Rs 10/litre is something which is clearly not sustainable and will probably send a wrong signal also about diesel price deregulation at some stage. Q: Where does RBI fit in the middle of all of these factors? So far no one knows what is going through the governor’s mind and what is going through RBI’s mind in terms of policy rates from now on. We have heard arguments in favour of both hike in repo rate and cut in repo rate going forward. As we head into the next policy what do you think could be the stance with the RBI?
A: The way I am looking at it is that the objective of raising short-term rates was to contain forex volatility. The forex still remains extremely volatile. In that kind of an environment calibrate revoking of the earlier policies is going to be difficult so at least for the September policy it looks like RBI is going to stand pat on its stance. It is more interesting that whether there could be any other ways of getting in more dollars into the country coming from RBI that is where markets will be focusing on. I don’t think there is a realistic possibility of short-term rates coming down so soon. Q: There was this big impetus which has come into infra/power by the CCI overnight. In your eyes do you think that that is enough to give a push to industrials and when could we see it impacting GDP at all?
A: I do not know whether it is enough or not, but it is definitely a step in the right direction. India is a growth economy. The entire foreign investor attention on India is because of its growth. Hence, I would be all in favour of any measure which is growth promoting.
I am hoping that these kind of measures are announced more frequently. These kind of announcements really change the sentiment on growth. Now the next step will be to see how much progress is made on these announcements, because otherwise only announcements after a point of time will lead to fatigue from foreign investors. So, now the critical data I will be looking for is, is there any progress on the ground on these projects which have been approved by CCI.