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Last Updated : Jan 02, 2014 10:45 AM IST | Source: CNBC-TV18

StanChart sees positive IIP, RBI pause continuing in Jan

In an interview to CNBC-TV18, Samiran Chakrabarty, head of research of Standard Chartered Bank spoke about his reading of the current economic environment in the country and his outlook.

In an interview to CNBC-TV18, Samiran Chakrabarty, head of research of Standard Chartered Bank spoke about his reading of the current economic environment in the country and his outlook.

Below is verbatim transcript of the interview on CNBC-TV18

Q: How did you read the core sector data that came out for the month of November yesterday? How exactly would you extrapolate it to the Index of Industrial Production (IIP) that is expected on January 10? What about the fiscal deficit data as well?


A: The core sector data was slightly positive compared to last month where it was in the negative territory. It is clearly more a reflection of the electricity generation growth that dragged up this data to about 1.7 percent. Most of the other sectors remain quite subdued, so overall infrastructure growth still remains a concern area for us. Electricity growth is primarily driven by hydroelectric power. Even thermal power generation is some cause of concern as of now.

Having said that, I think this would probably pull up the IIP into positive territory when we get the full IIP data later this month, but that is not going to be good enough to indicate an industrial recovery. IIP has been lagging at these kind of lower levels for a very long period of time.

The bigger worry seems to be the fiscal number where we have already touched 94 percent of the full year's fiscal deficit target and in the rest four months of the year it is going to be extremely challenging to meet the fiscal deficit target unless some of the one-off lumpy revenue items really kick in and expenditure is curtailed quite a lot.

Also Read: Chidu, Pranab have left a debt time-bomb for next govt

Q: What is the outlook for currency in 2014? We had a rough ride in 2013. Last quarter was slightly better, had a bit of a recovery, but for 2014 what would be your outlook?

A: I think the good news on the currency front is that we now have some control on the Balance of Payments (BoP) situation. The Current Account Deficit (CAD) numbers are much lower. We have got quite a lot of inflows through the concessional swap schemes which has created little bit of a buffer to address any kind of currency volatility.

The currency really remains on two macro factors - inflation and fiscal deficit and the non-macro factor which is the politics if it plays negatively when the election time comes in. If the politics does not play spoilsport I would tend to think that there is no real negative surprise on the currency front in the near-term. The global situation also remains somewhat better now. Most of the developed countries are picking up pace on growth, so that should also help Indian exports and to that extent support the currency.

Overall, it should be a relatively less volatile year this year on the currency front. The big unknown, the big digital risk is politics which is extremely difficult to predict.

Q: What is the slippage that you are estimating on fiscal deficit?

A: At this point of time we are going with about Rs 20,000 crore slippage on the fiscal deficit, about 0.2 percent of GDP. This is a number which we probably have to relook at once the December advance tax numbers are really filtered into the system and we get the December data, so we will get 9 months of data and we will be in a better position to look at this number. This is a very hard number to predict at any point of time because it depends a lot on very large lumpy non-tax revenue items as well.

The HZL and Balco sale, how much of PSU cash transfer will happen, how much of subsidies will get deferred to next year, these are all very lumpy items on which political decisions need to be made and that is why for us economics has become little bit more challenging to predict this number, but having said that I think some marginal slippage is almost inevitable at this point of time.

I would also like to say that this would not necessarily mean additional borrowing on the part of the government, because the government started off the year with huge cash surplus and they can spend that cash surplus through the year and end with a relatively lesser cash surplus and not go for any significant additional borrowing.

Q: The first Reserve Bank of India (RBI) meeting this year would be on January 28th. I know the government has said that he will be data dependent. So it will be tough to hazard a guess right now. What is your call for monetary policy this year?

A: We will take it as it comes. We will have to take near shorter-term calls rather than a big long-term call, because the inflation number has been notoriously unpredictable in the near-term because of the one-off items like vegetable prices etc. What we are realising is that the kind of hawkishness that we had heard in the Governor's voice in September, probably he is now moderating that a bit and the concern on headline inflation is less and the concern on core inflation is more.

If we take that kind of a stance then if we see about 75-100 bps correction in the headline print for January then we could possibly see him staying on pause for one more policy. He would probably say that the decline in vegetable prices which we can definitely vouch for is substantial enough for him to wait.

We have taken a call that if the headline Consumer Price Index (CPI) comes down below 10.5 percent, we would probably see him going in pause mode and also the core CPI needs to stay somewhat lower than what it was in the earlier print.

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First Published on Jan 1, 2014 03:54 pm
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