Fiscal slippage, if it propels growth, is good: SBI Chairman
ET, he says that Indian economy is also hampered by rigid laws that prevents it from exploiting a trade war.
The corporate tax cut has been welcomed by equity investors. How do you think this would play out in the real economy?
This has definitely improved sentiment. Today both investor and consumer confidence matter a lot, now that has been taken care of … we are hoping this move will help revive private investment, which has been slacking for quite some time now. These fairly steep cuts have the potential to attract a lot of investments in the manufacturing sector. Today we need more money in the hands of corporates if investment must pick up. If these corporates invest this money back, it will give a big boost to manufacturing and help the economy come out of its present slowdown.
Some believe investments would take time. What about consumption which is also faltering?
Good monsoon, lower interest rates, the festival season will all together give a fillip to consumption. The government is also front-loading its expenditure, so we will see more money flowing into the economy. The next 2 to 3 months are crucial with the busy season now upon us, we expect demand to revive. You would also have heard Maruti’s RC Bhargava saying that auto sales are now bottoming out and he sees some growth revival, so let’s see how the festive season pans out for the automobile sector.
How do you see credit growth as the festive season is on?
Retail credit growth is looking promising. It is expected to be in the range of 10-12%. We have seen that traditionally credit demand peaks in the festive period between September and April. We have a robust pipeline of corporate loan book and we are planning to convert this into disbursals. We expect a double-digit demand growth from the corporate sector.
There is a concern over missing the fiscal deficit target… any slip there would be seen as bad for foreign investment. What’s your view?
At this point in time the economy needs a boost. Naysayers blame the government if it hadn’t have given a fillip to the economy. The positive news is that if the GDP growth inches up, there will be more tax collections. If 3.3% of fiscal deficit slips to 3.7% … but, in turn, if it propels investments, it’s not a bad trade-off at all.
We have seen trade wars impacting our equity markets, is it also bearing down other businesses?
This is not the first time we are witnessing trade wars. History has shown that at some point two or three countries were at loggerheads due to trade-related issues. In the 90s, the trend was globalisation… in thirty years, it has reversed towards a more nationalist and protective stance where countries want to protect their turf. But, the opportunities are huge, if a country is competitive, it will find investors and people flocking to put money.
India doesn’t seem to be benefiting much from the trade wars, especially between China and the US?
Due to the US-China trade war, we have seen that some of the manufacturing is shifting and the biggest beneficiaries have been Vietnam and Bangladesh. India has benefited as well but not to the extent it was expected. We had a very high tax rate which has now been taken care of. We are now the lowest in the entire region. We also have infrastructure bottlenecks, rigidities in the system due to age old laws.