GDP no surprise; to be around 5.5% in H2CY12: Tata Steel

Gross Domestic Product (GDP) for the April-June quarter grew at a better-than-expected 5.5%, after eight successive quarters of declining growth. Kaushik Chatterjee, Group CFO of Tata Steel said the figure was not a surprise.

According to him, clearer policy direction and faster approvals would create value for the economy and would make the country economically attractive. The present GDP numbers area  reflection of actions taken two or three quarters ago, "I always maintain that without any initiative possibly India grows at about 5%. With a little bit of initiative, it grows at about 6% and with huge amount of policy stimulus it will grow possibly on a sustained basis at 7% or beyond 7%," added Chatterjee. Also read: Expect GDP growth to pick up in Q3 & Q4: C Rangarajan Q1 GDP: Rate cuts still seem some way off, says expert
However, Chatterjee also stressed on the fact that India does not have the ability to sustain its GDP beyond 7%. He also expects the figure to hover around the 5.5% mark in the second half of 2012.
As far as expansion plans of companies are concerned, liquidity pressure is forcing them to re-evaluate those strategies. Here is the edited transcript of the interview on CNBC-TV18. Q: As a person from the industry and as someone who is running a very large business do you see this as an opportunity to make more investments, everything that can possibly go wrong is going wrong at this point, does that mean that we are sort of bottoming out and we could have a revival in a year or so or are things so uncertain right now that it is very difficult to take a call?
A: I think there are a couple of points on this. One, the quarter on quarter GDP numbers reflect actions which have been initiated few quarters back. So the 5.5% number is not a surprise. In fact in relative terms, if you stand across the world people will die for it. But India's aspiration is different, India needs a lot more fixed asset investments and a lot more capital formation can happen because structurally it is an attractive economy.
What we need essentially therefore, is clearer policy direction, faster approvals and execution on the ground so that the capital investments become productive and create value for the economy. This has taken a bit of a backseat over the last four or five quarters or maybe six quarters and this is only reflective of this.
I always maintain that without any initiative possibly India grows at about 5%. With a little bit of initiative, it grows at about 6% and with huge amount of policy stimulus it will grow possibly on a sustained basis at 7% or beyond 7%. We do not have the immunity to sustain ourselves.
I think from these kind of numbers, my first reaction is obviously it reflects that the pipeline of capital formation has weakened and therefore, not much investments are happening. If that does not happen, we do not have a trigger on the economy.
The other thing is private consumption. Obviously when the sentiments are down, when the perception is weak, when politics is overwhelming on the economy then people will spend less, consume less. They will be more focused on saving the money and keeping in liquidity. The companies will also do the same.
You see world over, even in the US there are a lot of companies which are stacking up cash and not making any investment because they have an uncertainty. That is a normal process and that is what we are going through. I wouldn't be surprised with this level of GDP numbers coming in over the next quarter or two quarters because there isn't any impetus being provided on the economic front.
_PAGEBREAK_ Q: Is it only quarter-two quarters? We have now a capital formation number which is as bad as 0.6% and private final consumption expenditure which was holding up at something like 8-9% had already fallen to about 5% in the last two years and this quarter it has come in at a decade low of 3.9% consumption growth. As a person making investments, when you see private consumption falling like this and capital investment just nothing in the pipeline, will it be just a two quarter thing or is it going to be a 2-3 year thing?
A: If you have a sustained private consumption which is lower than what the expectations are it will obviously affect creation of new supply and that will impact the fixed asset formation. People will think that structurally the Indian consumption story is not as strong as we often believe.
Therefore, the big time investments will possibly be held back. These are not independent; it has its own interdependencies which can affect the country very severely. Hence, over a longer period of time firstly you have to see a bottoming out. Secondly, between policy direction and investments, it is actually a one and half year kind of a lag because tomorrow you change the policy, day after tomorrow you won’t find investment coming in.
The ground reality is, it does take a long time to make investments fructify. I am saying two quarters or three quarters only from a figurative point of view but, it can have a much longer impact going forward unless things change very drastically. Q: How difficult does it get because we have fairly debt laden balance sheets across the spectrum including yours?
A: It depends. The general sentiments will obviously affect the way in which the funding scenario will emerge. It is the duty of each company to look at its own corporate finance strategy for raising capital and that is why I said that if these sentiments do not improve, if the liquidity situation doesn't improve, if the rates remain high then people will be forced to look at investments and supply side issues.
Therefore, they would be holding back their surpluses as liquidity rather than going in for external funding. I don't think we have come to that stage which is as severe as that at this point of time. I think it is mapped against our expectations of 7.5% versus 5.5%. But, if it continues, people will be more moderate in creating more capacities and investments. Q: There is a big concern running on steel particularly after the China price correction. What is your sense on both the domestic scene and the global scene?
A: The domestic prices have in my view still maintained the levels. It has got many factors to do. One is on the supply side, one is the way in which the currencies have worked because in effect steel at the end of the day is dollar pegged. There is a fair bit of stability in terms of the demand, though not in all sectors but in some sectors.
In the construction sector we are still seeing rural and non-metro construction being fairly robust. The retail construction is also quite firm. But this will all get affected if we continue to go forward with a weaker sentiment and a perception perhaps.
As far as international prices are concerned, they have softened but there is a direct linkage to the raw material prices. The iron ore prices have softened very significantly. Therefore, that is the linkage. As far as the Chinese prices are concerned, they are demonstrating the same. So it is all over the world. When raw material prices soften, the steel prices also follow suit because there is a lag affect or a cost push effect either ways.