Expects growth to come back with GDP in the range of 7.5-8%: Chetan Ahya

The March quarter GDP data failed to impress the Street but economists expect there more to than meets the eye. Chetan Ahya of Morgan Stanley expects GDP growth to accelerate to 7.9 percent by December 2017.

The GDP data has a lot of nuances that we have to go through. If you remember, last year, March quarter was very strong as growth rose to over 9 percent. “We also had DeMon impact which came in last quarter which macro data is giving a positive indication,” Ahya said in an exclusive interview with CNBC-TV18 on the sidelines of Morgan Stanley 19th India Summit.

“If we look at the April-May data such as two-wheeler sales, car sales – it looks like the bulk of currency replacement programme is behind us and in the meantime, exports have also picked up,” he said.

“The recovery in the external demand that we are seeing right now is the best after 2011. To that extent, when external demand picks up, consumption picks up, we do think the growth will come back to 7.5-8 percent by Dec 2017,” added Ahya.

He further added that I would also look at corporate revenue growth which is nearly stable for the quarter ended March. That will be a better indicator to watch.

Commenting on the upcoming monetary policy, Ahya said that he expects the Reserve Bank of India to remain status quo in the upcoming policy meeting.

Below is the verbatim transcript of the interview.

Latha: Your view is also quite bullish on the economy, you are expecting growth to accelerate to 7.9 percent by December 2017. The last growth number did not give us that confidence, 5.6 percent GVA and 6.1 percent gross domestic product (GDP) in the just-ended quarter, where is this confidence springing from?

A: I think the GDP data has a lot of nuances that we have to go through. The first issue is that there was a bit of base effect. Last year, the same quarter was very strong, more than 9 percent. Secondly, we did have genuinely the impact of currency replacement programme, which was quite weighing.

At the same time, the underlying economic activity has still not picked up meaningfully. But I think by this time and when we look at the April-May data point, the two-wheeler sales, car sales seem to show that the bulk of impact of currency replacement programme on discretionary consumption seems to be behind us and in the meantime just look at the last two months exports numbers, we have seen meaningful double digit growth in external demand and I do not think it is a trend, which should be washed away or written away as a small trend because when I look at the regional data and emerging markets data, the recovery in external demand that we are seeing right now is the best after 2011. So to that extent, as external demand picks up and consumption picks up, we do think that growth will come back accelerating towards that 7.5-8 percent range again.

This is the new series and I am less believer of that new series and we have written that in the past, I would just look at corporate revenue growth. Corporate revenue growth was nearly stable when you look at the broad market corporate revenue growth in the quarter ended March 2017 and that which is running at around 6 percent, I would say that will accelerate to about 10-12 percent in four quarters time and that will be a better indicator to watch and then you can also assess my forecasting better that way .

Q: There are too many revisions and now there is the index of industrial production (IIP) and the wholesale price index (WPI) also revised. I can imagine, there is confusion there. But there is no confusion in the upcoming event, the monetary policy, there was price data is definitely cleaner than output data and that is showing a very meaningful dip, 2.99 last reading and it looks like it is going to remain that way, first of all what is your own inflation reading, are we going to be sub-3 from a goodish bit?

A: I think we would like to look at the core inflation number and take that more seriously. That dipped but it is still around 4.4-4.5 percent. So with 4.5 percent inflation underlying and we are in some kind of cyclical low as far as the domestic demand is concerned, you are going to see pick up in domestic demand going forward, the food inflation number does have some base effect. At the same time we have just been fortunate that there was good weather, global commodity prices have been supportive. Going forward, if you try to take a more normalised view of inflation, we think it will be between 4.5 percent and 5 percent.

We think that by December, you will start seeing more than 4.5 percent inflation number. So this particular next two-three months is the best period as far as inflation is concerned. So as it normalises towards that 4.5-5 percent, we think that from that perspective, it does not look like Reserve Bank of India (RBI) should cut interest rates.

For full interview, watch video...