Ambit Capital has cut its GDP growth estimate due to low bank credit growth target. In an interview to CNBC-TV18, Ritika Mankar Mukherjee, Economist at Ambit Capital says she expects GDP to grow only FY17 onwards.
Out of a total 50 basis points, Ambit Capital's has cut down its estimates to 10 basis points as a result of slowdown in the agricultural sector, especially in the rural Maharashtra and parts of Northern India. Confluence of various factors have made rural distress story more palpable where rain has worsened the situation, she added.Calling Prime Minister Narendra Modi to be playing a “long inning”, she said there would be turbulence in the short term, from the GDP perspective. Commenting on the historical consequences after any bill on black money getting passed, she said there is a high possibility of number of NRIs growing. Because corporates are still learning to clear projects without exchanging bags, they will be uncomfortable to being watched at so closely by CBI if at all the Black Money Bill gets passed in both the houses, she explained.
Below is the edited transcript of Ritika Mankar Mukherjee's interview with Reema Tendulkar and Sonia Shenoy on CNBC-TV18.Sonia: Take us through the rationale behind why you cut your gross domestic product (GDP) estimate?A: On March 23, we had first cut our number from 7.9 percent to 7.5 percent mainly because our point of view was that this year is going to be turbulent from the perspective of how business models are defined by the new dispensation.The second round of cut has been mainly driven by two sets of reasons most prominently we expect bank credit growth in the system to be recorded at 12 percent now versus our initial estimate of 15 percent.The moment you go from 15 percent to 12 percent on bank credit growth in terms of quantitatives in the model that pulls down my investment growth number, consequently my industrial sector growth number and finally my services sector growth number to a very marginal extent. I have also trimmed my agricultural sector growth number.I don’t say there will be a drought year or a bad monsoon year, but all I am saying is that we should be cognizant of the fact that there is a high probability that of not getting a perfect monsoon this year. So out of the 50 bps cut, I would attribute about 10 bps to farm sector growth cuts.Reema: FY16 GDP could be around 7 percent. In your note you have also indicated that the Modi government is trying three critical resets -- that is what they are trying to engineer, which include moving the savings towards financial assets, disrupting crony capitalism and third one is redefining the subsidy mechanism and that will limit GDP growth in the short-term according to you. So will that spill over into FY17 as well?A: Looking at things, when you meet officials in New Delhi or current bureaucrats or former bureaucrats, what is relatively clear is Modi is playing a long inning. He isn’t playing a short inning whereby his focus would have been to surprise you and me on short-term GDP growth rate, which is why he is pursuing these three resets. As a result of this, there will be turbulence in the short-term because cross country evidence also suggests that whenever you recalibrate the structure of an economy in the short-term it creates turbulence from a GDP growth perspective but I would say from a FY17-FY18 perspective, I would expect growth to start recovering. I don’t have a formal number there but clearly from a medium-term perspective, things should start looking better in FY16.Sonia: I just wanted you to throw some more colour on agri-growth because that is the same point that Gautam Trivedi, MD & CEO of Religare Capital Markets was making a while back, they did a road trip in Maharashtra and Gujarat and they found out that the situation is worse than what they had expected it to be at the start, is that the sense you are getting as well and how much could the growth numbers deteriorate you think?A: I think we ourselves have been doing a lot of trips into the interiors of rural Maharashtra as well as north India. A confluence of several factors has made the rural distress story very real, very palpable. The wealth effect is waning; managing successful minimum support price (MSPs) schemes are not growing at a reasonable pace. Subsidy growth has been curtailed to a reasonable extent.
A lot of crops like sugarcane are not doing that well and the whole situation has been compounded by the unseasonal rains. So in terms of numbers what we are looking at is about 1.1 to 1.5 percent for FY15 and what we are looking at is something close to 3.2 percent for FY16. The number looks big because of the low base effect but if you didn’t have that low a base, you would probably see a lower numerical value in place.Reema: This agri sector growth that you have right now for FY16 -- is it assuming that the monsoon will be as per the IMD forecast, 7 percent below estimates or if it comes through and becomes a deficient monsoon, there is a likelihood you will have to cut down your growth forecast?A: Unfortunately, I think that is the case. At this point in time like I said, I am looking at not an ideal/normal monsoon but I am also not building in drought conditions or a bad monsoon per se. So yes, this number is at risk of further downgrades depending on how the drought situation pans out.
Sonia: Interestingly, you have also mentioned that the black money bill is likely to result in an exodus of Indian businessmen seeking resident ship abroad. How did you come to that conclusion?A: Even if you look at data around 1997 voluntary disclosure scheme (VDS) scheme, what you can clearly see, for Dubai you don’t have residency data that clearly available but interestingly for Singapore you do have data and interestingly the residency numbers of the number of non-residence coming into that country go up substantially whenever VDS scheme is launched there.I think anecdotally you are hearing already that certain promoters of certain headline companies are already doing that to avoid the consequences of what this black money bill can do. So the corroboration both from a historical perspective as well as our primary data sources does suggest that this is a very real phenomenon.Sonia: You have said that the Prime Minister’s crackdown means the private sector capex growth will disappoint in FY16, what do you mean by that, when do you expect the capex growth to start picking up, will it be in FY17 itself?A: This is more of a qualitative point and the point that we are trying to make here is that the construct, which was underplay under the United Progressive Alliance (UPA) for the last 10 years is changing in the sense that this Prime Minister seems very focused on breaking the very deep nexus that had been generated between the political class and the promoter class.I won’t take names of specific corporates but I think we all know that certain corporates are being looked at very closely by the CBI. We also know that the CBI is going after certain bureaucrats and certain ministries and all of that is obviously making the corporate community very uncomfortable. I won’t as a rationale human being want to undertake massive capacity expansion until I know what the rules of the game are.So I think that is the point that we are alluding to and this is again corroborated by when we stick to company managements, nobody knows the new rules of the game till the rules of the game settled down, nobody wants to undertake meaningful capex.Sonia: Corruption has also gone down significantly in that sense even passing of projects is taking a lot more time now.A: Absolutely, we are trying to figure out how we clear a project without exchanging bags of money.Reema: Growth will perhaps pick up only in FY18, all this will probably take some time.A: Absolutely, so short-term pain but long-term gain
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