ET NowIn an interview with ET Now, Devendra Pant, India Ratings, talks about the likely impact of slowing world economies, and India in particular. Excerpts:
ET Now: Are you worried about the China situation — its over-leveraged corporate balance sheets, economic slowdown and worsening corporate liquidity scenario? Chances are China might actually default on payments. Your view?
Devendra Pant: Defaults in China are likely to increase. In a way, it is a similar situation to what we are seeing here in India - over-leveraged balance sheets and liquidity drying up. The moment the liquidity dries up, you do not refinance more of debt. The default will rise.
But more worrying thing is the fact that China is now the second-largest economy in the world. With Chinese growth slowing down considerably from 10 per cent to around 6.5 per cent, the entire global economy will be pushed into a low-growth phase. If global economy goes into a low growth phase, there will be some favourable impact for Indian economy, which is mainly through the lowering of commodity prices.
But if you look at that from the other angle, the corporate balance sheets are not growing in India. To give you an example, in the first half of the ongoing financial year, we had an 8.5 per cent growth in petroleum product consumption in quantity terms. That is by far the highest growth in last 12 to 13 years.
Even in the good days of FY08 and FY09, we did not had that kind of growth in the quantity terms. But since the prices are roughly around 20 to 25 per cent lower than what they were a year back, you are not seeing that 8.5 per cent growth on the corporate balance sheets.
The top lines, because of 8.5 per cent quantity growth and 20 per cent decline in prices, are not growing. So the whole issue is if China slows down further, there is a chance that out exports which are in negative territory will continue to remain low.
How much support the domestic demand will be able to provide to the Indian economy is a big question. There is a question of sustaining the kind of 7.5 per cent growth that we are expecting for FY16 and in the years to come.
ET Now: The RBI credit policy is just around the corner. I would like to know your expectations for the same? Where do you think India stands at this point of time in comparison to emerging markets?
Devendra Pant: Let us talk about the growth first. If we look at the growth, there is no doubt that India is one of the best performing bigger-size country. I will discount smaller economies, which maybe growing at 8 per cent. So India is the only big-size economy, which is growing at around 7.5 per cent. Our GDP estimate for this fiscal is 7.5 per cent growth, up from 7.3 per cent in the preceding year. The growth could have been slightly better, had agriculture or the monsoon has been better than what it was.
This was the second consecutive year of monsoon failure. Having said that, the kind of decline which we are seeing from the agriculture side compensated by the kind of recovery we had seen in industrial sector, as seen in IIP readings over the last three months. It is a big challenge.
One big interesting point to will be the festival-related demand. We believe that IIP will continue to perform better from October onwards. If that pace at which the consumer durables and your capital goods have grown in this year slows down, then we may see the growth coming down from 7.5 per cent.
As of now, with industry showing a recovery, services sector is also growing and agriculture, unlike what other commentators believe, will give us something around 0.9 per cent of the growth. If we are looking at the second quarter numbers, we are expecting GDP growth rising from 7.1 per cent to 7.6 per cent, with growth in agriculture sector coming at half a per cent, industry coming at 6.9 per cent and services coming at 9.4 per cent.
Now coming to monetary policy, as of now the chances of anything happening in remaining of this fiscal year are pretty low. We believe that the RBI will continue to maintain status quo on policy rates.
There may be tweaking of some regulatory issue but for this year, this fiscal, the chances of any more monetary easing are very limited.
ET Now: Are you worried about the China situation — its over-leveraged corporate balance sheets, economic slowdown and worsening corporate liquidity scenario? Chances are China might actually default on payments. Your view?
Devendra Pant: Defaults in China are likely to increase. In a way, it is a similar situation to what we are seeing here in India - over-leveraged balance sheets and liquidity drying up. The moment the liquidity dries up, you do not refinance more of debt. The default will rise.
But more worrying thing is the fact that China is now the second-largest economy in the world. With Chinese growth slowing down considerably from 10 per cent to around 6.5 per cent, the entire global economy will be pushed into a low-growth phase. If global economy goes into a low growth phase, there will be some favourable impact for Indian economy, which is mainly through the lowering of commodity prices.
But if you look at that from the other angle, the corporate balance sheets are not growing in India. To give you an example, in the first half of the ongoing financial year, we had an 8.5 per cent growth in petroleum product consumption in quantity terms. That is by far the highest growth in last 12 to 13 years.
Even in the good days of FY08 and FY09, we did not had that kind of growth in the quantity terms. But since the prices are roughly around 20 to 25 per cent lower than what they were a year back, you are not seeing that 8.5 per cent growth on the corporate balance sheets.
The top lines, because of 8.5 per cent quantity growth and 20 per cent decline in prices, are not growing. So the whole issue is if China slows down further, there is a chance that out exports which are in negative territory will continue to remain low.
How much support the domestic demand will be able to provide to the Indian economy is a big question. There is a question of sustaining the kind of 7.5 per cent growth that we are expecting for FY16 and in the years to come.
ET Now: The RBI credit policy is just around the corner. I would like to know your expectations for the same? Where do you think India stands at this point of time in comparison to emerging markets?
Devendra Pant: Let us talk about the growth first. If we look at the growth, there is no doubt that India is one of the best performing bigger-size country. I will discount smaller economies, which maybe growing at 8 per cent. So India is the only big-size economy, which is growing at around 7.5 per cent. Our GDP estimate for this fiscal is 7.5 per cent growth, up from 7.3 per cent in the preceding year. The growth could have been slightly better, had agriculture or the monsoon has been better than what it was.
This was the second consecutive year of monsoon failure. Having said that, the kind of decline which we are seeing from the agriculture side compensated by the kind of recovery we had seen in industrial sector, as seen in IIP readings over the last three months. It is a big challenge.
One big interesting point to will be the festival-related demand. We believe that IIP will continue to perform better from October onwards. If that pace at which the consumer durables and your capital goods have grown in this year slows down, then we may see the growth coming down from 7.5 per cent.
As of now, with industry showing a recovery, services sector is also growing and agriculture, unlike what other commentators believe, will give us something around 0.9 per cent of the growth. If we are looking at the second quarter numbers, we are expecting GDP growth rising from 7.1 per cent to 7.6 per cent, with growth in agriculture sector coming at half a per cent, industry coming at 6.9 per cent and services coming at 9.4 per cent.
Now coming to monetary policy, as of now the chances of anything happening in remaining of this fiscal year are pretty low. We believe that the RBI will continue to maintain status quo on policy rates.
There may be tweaking of some regulatory issue but for this year, this fiscal, the chances of any more monetary easing are very limited.
Get Unlimited Access to The Economic Times
