It's not a big negative if there are no rate cuts: SBI Chairman

We need to wait for the next CPI , she said.

Suvodeep Rakshit, Economist at Kotak Institutional Equities, said that the market has internalised the fact that the consumption is the way forward for driving growth. FY17 is a consumption-led story. The RBI is talking about 7.6 percent taking into account the Pay Commission. He doesn’t think there could be much upside in growth on a year-on-year basis.

DK Joshi, Chief Economist at Crisil, said it is ironical that despite a good monsoon, and the Seventh Pay Commission, the inflation has edged up. “My call is 5 percent inflation.” But this inflation will be transitory, he said, adding that he expects a 25 basis point cut sometime this calendar year.

Rupa Rege Nitsure, Chief Economist at L&T Finance Holdings, also believed that there are going to be a lot of policy benefits coming out of consumption. India’s inflation is structural in nature, she said.CNBC-TV18's Latha Venkatesh spoke with Suvodeep Rakshit, DK Joshi, Aditi Nayar, Rupa Rege Nitsure and Arundhati Bhattacharya. Below is the transcript of the interview.Latha: One of the first things that I got from the annual report is that a certain hawkishness that unless inflation projections fall further there may not be scope to cut rates or rather - let me not paraphrase the reserve bank. The words that they exactly say is that \\"the room to cut policy rates can emerge only if inflation is projected to fall further\\". So, looks like at the moment they don\\'t see room. Hypothetically if there are no rate cuts will that be a dampener?Bhattacharya: If there are no rate cuts it will definitely not be a positive. I don\\'t see it as a big negative because frankly speaking 25 bps this way, that way is not going to stop any projects. But the fact of the matter is rate cut is more like a signal. It brings back more confidence to the economy. And that is where business confidence is paramount if you are looking at growth. So, it is more that than any material impact that it will have.In any case going forward we do see the rates drifting down a little at least both the deposit and the lending rates will drift down further even without a rate cut. So, that will happen but a rate cut basically what it does is it signals the need for growth and that is a very confidence boosting measure.Latha: My cursory reading of the report it also indicates that there is a hope that monsoon and pay commission will boost consumption and that will increase capacity utilisation and that will force companies to start capital expenditure (capex) which is not there now. Do you see such a virtuous cycle of growth as the RBI puts it?Bhattacharya: I would definitely share that hope. I have also been saying that the two main triggers that we are looking at is the monsoon and the seventh pay commission. As you know in India the demand always builds from the bottom and if there is widespread demand destruction at the bottom then definitely the overall demand in the economy comes down and that results in lower capacity utilisation for all our production units. So, to that extent as the demand builds up from the bottom and I think it will build up from the bottom, two reasons, one is of course that there is good monsoon and now this year the National Rural Employment Guarantee Act (NREGA) flow also has been much better. So, both put together will create a demand at the lower levels which in turn will roll up into higher capacity utilisation as we go ahead.The seventh pay commission is also a booster. Again it is not the amount of money that will come in because a lot of money will go into provident fund (PF) and things like that, may not actually be in the hands of the people but even then that is also a confidence booster, a morale booster and we will see consumption going up on the back of that. Given the fact that the festival season is just around the corner both of these two coming in conjunction with the festival season we definitely expect to see demand going up and that should definitely be good for the economy.Latha: Reserve bank is also asking banks to go big on consumer grievance redressal especially in rural areas and they say they are also going to spend a lot of time and money and bandwidth on alerting consumers. They want every bank to set up an ombudsman. Your thoughts?Bhattacharya: Actually on the consumer redressal front most of the banks already have internal ombudsman. We have, and I am sure a number of others have also because I know some of our own people have been employed by other banks. So, this ombudsman process is already there. However, to ensure that everybody gets the advantage of this it is a question or raising awareness. Also the fact remains that with more and more use of electronic channel it is very important for the consumer to understand what he should do and what he shouldn\\'t do.I am aware of a case where a person received eight wrong calls regarding usage of their card and this person on all eight occasions parted with his onetime pin (OTP). Though when the OTP is sent on a person\\'s mobile the message states that please do not part with this to anybody at all and use it yourself. This message is part of the SMS that goes. In spite of that this person parted with in one evening on eight occasions. Now, stuff like this is very difficult to control unless and until people understand what they can do and what they can\\'t do. So, what is really required in our country is to raise the level of consciousness and that we have to it together.Latha: From what you have heard, the slight hawkishness which I thought was there in the Reserve Bank saying that unless projections are further cut, there isn’t a much of a chance of rate cut, your thoughts?Joshi: I think the inflation has surprised us on the negative side, because the target is 5 percent and there has been a sudden spurt because of food item. It is kind of indeed ironical, that two years of bad monsoons and the food inflation stayed under control, but now with the onset of good monsoon, the inflation is going up. To me it looks like transitory and the areas sown under pulses, the good rain along with it mean that many of the items within the food, which were pressuring inflation, should soften going ahead. I would still view a 5 percent target being met, that’s our call, but from a central bank perspective there is a shock to the inflation which was unexpected so they need to be cautious.Latha: What if you made of the statements that you got, a little bit of hawkishness on inflation and a little bit hope on growth?Rege Nitsure: I support the sentiment, because we have been seeing that policy direction has been right and we are going to have lot of benefit coming out of consumption stimuli. Having said that you see India’s inflation is very much structural in nature and even though we may see some kind of ease around February-March because of base effect also and of course the outcome of favourable monsoon on food inflation. Latha: They have speaking about a durable pick in investment activity remaining elusive, but consumption will provide a lot of support to aggregate demand and even on the FX a fairly positive statement being made that now we have 11 months of import equivalent of reserves your comments?Nayar: Definitely as far as the overall sentiment is concerned, I think the echoes are same views as far as the consumption led stimulus to growth in the current year, very much with the kind of boost coming in from the rural side from the monsoon as well as the Pay Commission which will really help urban demand. Consumption should pick up and particularly after the festival season I think we should be able to see a lot better volume growth for the manufacturing sector and as capex capacity utilisation improves, some capex should start to get announced towards the end of this fiscal year and without that it’s unlikely that we are going to see a very durable uptick.Latha: You heard a bit about, what my colleague and I have told you about the annual report, the confidence about 7.6 percent and agri consumption, rural consumption demand led growth. Your thoughts on that as well your thoughts on the slight doubts over inflation and in couple of places the Reserve Bank has kept that 4 percent glide path. I saw two references to it. Now if 4 percent is so real as a goal, then what are your thoughts about rate cuts going forward?Rakshit: First of all, we need to realise and I think the market has already kind of internalised it that the consumption is the way forward in terms of driving growth. Monsoon again its two years of weak monsoons and subsequently we are going to have a normal monsoon as well as consequently your income effect from the monsoons to the rural demand coming into play. It’s essentially a consumption story as of now. It’s not yet what we call in general durable growth path as of now, but more importantly from a year basis FY17 is a consumption led story, that RBI is probably internalising it. They are talking about 7.6 percent taking into effect a bit of the Pay Commission and a bit of the monsoon led rural demand recovery. Having said that this cannot continue year on year because at some point in time there will be the inflationary pressures that will come in, so until and unless you get the investment cycle going from the private sector side and I have heard comments made about the capacity utilisation starting to go up, but that will take time, it is not the immediate focus area that can immediately emerge for a companies.