As India's slow growth continues to be the centre of debate. CNBC-TV18's Malvika Jain caught with the Department of Economic Affairs (DEA) Secretary, Subhash Chandra Garg and asked what he makes of the economic slowdown and what are the government's plans going ahead.
As India's slow growth continues to be the centre of debate. CNBC-TV18's Malvika Jain caught up with the Department of Economic Affairs (DEA) Secretary, Subhash Chandra Garg and asked what he makes of the economic slowdown and what are the government's plans going ahead.
We have hit the bottom of economic slowdown, said Garg.
He further said that India will ride the growth wave once again.
According to him, healthy core sector growth is a positive indicator. However, private investment is the only sector not contributing to growth, he said.
India has a good consumption growth story, he added.
Below is an excerpt of the interview.
Q: My first question to you is that with the Prime Minister's Economic Advisory Council concluding its first meeting, it is pretty official that there is an economic slowdown. Is there anything in particular that you think the government can do or is already doing that is not out there in the public domain?
A: There has been a sort of reduced growth in the last 4-5 quarters which is a fact. So it has come down finally to about 5.7 percent in the last quarter. But, my assessment is where are we? Have we hit the bottom or we still have further slowdown to take place? My own assessment is that we have hit the bottom. It is the point of turning around. So we should now be riding the growth wave once again. To me, if you see it as a V-shaped kind of thing, there has been decline, now it should be a V-shaped recovery going forward.
I think everybody takes note of what has happened. The data is there. The core sector has returned very healthy growth of 4.9 percent. All other indicators like commercial vehicles, that is a fantastic increase of 30 percent plus.
Q: Do you think private investment is picking up adequately because there is a lot of excess capacity but it does not seem to be getting priced.
A: The only sector where I suppose the concern still in and which perhaps is not contributing to the return of the reasonably high growth is the private investment space. Our consumption story is good, exports have resumed their journey upward once again, government expenditure has been robust and high. The only space where possibly the contribution which needs to come and it is not coming at this moment is the private investment.
Q: And why? What to your mind is the reason?
A: This space also is getting addressed. That is what we perhaps need to take good note of. The private investment was not coming, to my mind, for principally two reasons. One, we had invested heavily in the years of 2008-2010 or so. A lot of excess capacity had got created in a number of sectors whether it is power, steel or cement for that matter. So that excess capacity had left a lot of output gap. Now that output gap is closing. So that was one reason which will probably get addressed.
The other reason was that this investment at relatively high cost led to a lot of overleveraged corporate entities suffering from high debt kind of situations and resulting into corporate sickness in many sectors. There was no good resolution mechanism for that. Now we had the Insolvency and Bankruptcy Code (IBC) process which has been set very well. You have seen that strict time table.
Q: What about the issue of bank recapitalisation?
A: These things perhaps point out to me that even the private investment demand going forward, this may not return in one year or so, but soon enough, this investment demand will also come up.
Q: So on the issue of bank recapitalisation, do you want to give me some specific sense of which direction we are heading into? By when can it be a possibility? Is a separate institution going to be created to take over the non-performing assets (NPA) and some sort of fresh infusion be made into the bank? How is this going to pan out?
A: Let us recognise what the real dynamics of the bank recapitalisation needs are. There is provisioning for the bad assets which has created the deficit of capital in the banks. So how good and how big is the provisioning requirement is something which we need to worry about. Then, we need to factor in the growth which these banks should be able to achieve so that they can finance the fresh investments. Capital only enough to hold on is not a great idea. These banks actually need to land more. So all these things put together will determine what the requirement of capital is.
Q: My point is how is it being arranged? When is it going to happen?
A: We are discussing about the provisioning, we are discussing about the requirement and we are also discussing about ways to finance that requirement. There are number of options.
Q: Is a recap bond something that might be looked at?
A: Recap bonds is one of the possible options to finance the recapitalisation needs. There are other measures also including potential, further disinvestment by the banks and things like that. So all these things are being discussed.
Q: So disinvestment of what by the banks? The disinvestment of the banks or some of their assets?
A: Disinvestment by raising fresh capital. Many banks have space. We have the policy of 52 percent, but there is space available in many banks to raise fresh issue and they can raise fresh capital also. This is also one of the options. There are considerations whether the banks do have the right kind of value at this time if they come to the market. Many of them are not priced very high in terms of their book. So all these elements are also something which enter into the discussion space.
Q: But the option is on the table but no decision has been taken?
A: Right. All these options are very actively being discussed and I think very soon we should be able to take a closing call on how much of the capitalisation need is there and how to finance it.
Q: You mentioned the exporters. Some of their concerns, you said that there is an uptrend that is picking up. One of the reasons of course, for a slowdown in exports was global demand and that is a factor that India can definitely not control. But there were working capital issues and some changes have already been put in place or introduced by the government. But do you think that their concerns have been adequately addressed or can the exporters expect some more relief from the government? We have definitely moved to the pre-GST era, but is something more that can be expected?
A: Global demand is picking up again so that was one reason why we actually had negative growth in exports. So with global demand picking up that one channel opens up. What you mentioned about the exporters' issues post GST where GST Council has addressed many of them, we have found solutions for that. I am not exactly aware of further discussions and their demand, but suddenly if anything which is feasible which is desirable for making the exporters efficient and internationally competitive and to enable them to grow exports is something which the government would be happy to deliver.
Q: There has been a long standing demand and this is not linked to the GST. It is the manner in which custom clearances take place. There is a long lag between when shipments actually reach the port and when they are actually on boarded. The government has been talking for a long time to streamline that process. Is that also something that you are actively looking at, at this point of time?
A: I understand there has been a lot of efficiency improvement on ports. It is not that it has not happened. So, a lot of time has been cut down in actual loading operations, a lot of time has been reduced in terms of the processes, the payments and the receipts.
A: This is also even recognised globally. Performance on the global logistics index indicate that such a large improvement has taken place.
Q: But there is a long way to go?
A: But I certainly recognise there is still further work to do. It is not that we are the best of the operators in the world. And that process is on. That work is there.
Q: Going back to the issue of GST, there were several concerns that the informal sector has also raised. You have tried to address that they do not have to file returns every month, they can move from quarter to quarter, threshold has been set up. Those kind of steps have been taken. But again, similar to what I asked about the exporters, where is the infrastructure? Even for a quarter by quarter basis, how will these people actually file their returns who are sitting in a village?
A: Government's policy objective is to bring more and more people into the GST net, but by making their life very simple and convenient to them. The revenue potential of these small GST dealers is not very great. At the same time, their ability to meet wondrous requirements for compliance is something very limited, we need to recognise that.
Q: So the government is going to take a relaxed view?A: Government will take a pragmatic view about making their compliance very simple and very doable from their standards.