ET Now
In a chat with ET Now, Dr Rupa Rege Nitsure, Chief Economist & General Manager, Bank of Baroda, shares her macroeconomic outlook. Excerpts:
ET Now: For an equity market watcher, the puzzling point here is that if flows have been so strong and if the macro conditions for the Indian economy have improved, why is the Indian rupee under pressure.
Dr Rupa Rege Nitsure: Macro conditions have started improving, but as I have been saying, the pace of improvement is quite slow. This is not unique to India. Across the globe, we are seeing that the pace of structural reforms is always painfully slow and by the time this would have impact on the actual ground it takes anywhere between 8 months to 12 months. But having said that, the recent setback to India has come in the form of contracting exports. Even if our inflation has been declining sequentially, inflation differential between India and its trading partners continues to remain high, and when the economy picks up, non-oil, non-gold imports also start picking up and that growth is observed to be quite strong for the last couple of months, which is putting pressure on CAD. So when there is a downside pressure on CAD, naturally it creates depreciation bias in the rupee.
ET Now: How do you view the reports that the government is saying that we are imposing fresh curbs on gold imports? Does it make sense for the government and the RBI to think of imposing fresh curbs?
Dr Rupa Rege Nitsure: These arguments were valid when last time they imposed curbs. But we saw that really helped control the CAD expansion and I feel that now the kind of pressures which we are seeing in potential terms on the current account deficit, it makes sense for the government to come out with fresh curbs on gold.
ET Now: There is another report which actually nobody has really noticed perhaps very much is that the RBI has reduced the time available to exporters to bring in their export proceeds from 12 to 9 months. Does it suggest that RBI is actually more concerned about flows and export earnings?
Dr Rupa Rege Nitsure: Yes, I agree with you, but export earnings is the only way to reduce current account deficit in a durable fashion and now the focus of policymakers should be on reviving the export oriented industries because from the banking perspective, we are clearly seeing that credit demand has collapsed and the only sectors which used to come to us for credit demand for last five-six months were export-oriented industries.
ET Now: To your mind, which factor is more important in determining export performance -- exchange rate or global demand?
Dr Rupa Rege Nitsure: Always we have seen that the global demand plays a vital role, but then, we cannot undermine the importance of competitiveness of currency. As you have been saying that India’s export competitiveness has been eroded severely because for more than five-six years we are fighting this battle with inflation without much success and compared to our trading partners, our inflation is still very high, second highest in the entire world economy. So, at this stage what really matters is to improve the competiveness of our currency.
ET Now: By when do you expect the Reserve Bank of India to cut rates -- first quarter of next calendar year, second quarter, any guesses at all, informed guesses?
Dr Rupa Rege Nitsure: This is highly data dependent, but if we continue to see the same deceleration in commodity prices and if our rabi crop turns out to be normal so as to ease pressure on food grain stocks, then I feel we can see the first rate reduction in the first quarter of next financial year.
ET Now: For an equity market watcher, the puzzling point here is that if flows have been so strong and if the macro conditions for the Indian economy have improved, why is the Indian rupee under pressure.
Dr Rupa Rege Nitsure: Macro conditions have started improving, but as I have been saying, the pace of improvement is quite slow. This is not unique to India. Across the globe, we are seeing that the pace of structural reforms is always painfully slow and by the time this would have impact on the actual ground it takes anywhere between 8 months to 12 months. But having said that, the recent setback to India has come in the form of contracting exports. Even if our inflation has been declining sequentially, inflation differential between India and its trading partners continues to remain high, and when the economy picks up, non-oil, non-gold imports also start picking up and that growth is observed to be quite strong for the last couple of months, which is putting pressure on CAD. So when there is a downside pressure on CAD, naturally it creates depreciation bias in the rupee.
ET Now: How do you view the reports that the government is saying that we are imposing fresh curbs on gold imports? Does it make sense for the government and the RBI to think of imposing fresh curbs?
Dr Rupa Rege Nitsure: These arguments were valid when last time they imposed curbs. But we saw that really helped control the CAD expansion and I feel that now the kind of pressures which we are seeing in potential terms on the current account deficit, it makes sense for the government to come out with fresh curbs on gold.
Dr Rupa Rege Nitsure: Yes, I agree with you, but export earnings is the only way to reduce current account deficit in a durable fashion and now the focus of policymakers should be on reviving the export oriented industries because from the banking perspective, we are clearly seeing that credit demand has collapsed and the only sectors which used to come to us for credit demand for last five-six months were export-oriented industries.
ET Now: To your mind, which factor is more important in determining export performance -- exchange rate or global demand?
Dr Rupa Rege Nitsure: Always we have seen that the global demand plays a vital role, but then, we cannot undermine the importance of competitiveness of currency. As you have been saying that India’s export competitiveness has been eroded severely because for more than five-six years we are fighting this battle with inflation without much success and compared to our trading partners, our inflation is still very high, second highest in the entire world economy. So, at this stage what really matters is to improve the competiveness of our currency.
ET Now: By when do you expect the Reserve Bank of India to cut rates -- first quarter of next calendar year, second quarter, any guesses at all, informed guesses?
Dr Rupa Rege Nitsure: This is highly data dependent, but if we continue to see the same deceleration in commodity prices and if our rabi crop turns out to be normal so as to ease pressure on food grain stocks, then I feel we can see the first rate reduction in the first quarter of next financial year.
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