Mr Sajjid Z Chinoy of JP Morgan in an interview with CNBC-TV18 disagrees with CNBC-TV18’s GDP forecast of 8.3%. He said that “We expect GDP growth at 7.8%.”
His view is that for India to cross 8% real GDP growth this year, it’s imperative that there is a strong sharp pickup in the corporate private investment cycle outside of infrastructure. He added that “We are six to seven months into this fiscal and we have seen no evidence that this investment cycle has picked up.”
Here is an excerpt of Mr Sajjid Z Chinoy’s conversation on CNBC-TV18.
Q - You are quite circumspect and cautious with your expectation, our poll is 8.3% and you are saying 7.8% - why?
A - For two reasons; one is a technical reason while the other is a more fundamental economic reason. The technical reason is that the corresponding quarter last year, we had a very good number 8.6%. There is a base effect at play. Technicalities apart, the key issue is we haven’t seen any strong pickup in the corporate private investment cycle outside of infrastructure.
India has about 65% consumption, about 35% investments and the rest is broadly net exports. If you abstract away from net exports for now, consumption though solid has not been spectacular and for all the euphoria in the IIP numbers every month, consumption in real terms is growing at 7-8%.
So for India to cross 8% real GDP growth this year, it’s imperative that you have a strong sharp pickup in private investment outside of infrastructure. We are six-seven months into this fiscal and we have seen no evidence that this investment cycle has picked up and that is the basis for our circumspection.
Q - Would your full target be much lower than consensus as well?
A - Yes, we are just at about 8% right now. If another month or two goes by without the investment cycle picking up, we will be forced to perhaps reduce it below 8% just because the arithmetic doesn’t add up.
Q - What are you seeing with the investment cycle, do you see no pick up at all, because a lot of economists have been calling the current spate of weak IIP numbers as aberrations, you don’t agree with them?
A - No, because the capital goods component within the IIP is just one of the indicators we look at. If you look at capital goods, they have been extremely volatile in large part because all of that spending is infrastructure, which by definition is lumpy and volatile. So that is more evidence that the investment cycle hasn’t picked up.
But leave aside capital goods or the IIP data and look at non-food credit, look at how the trade deficits come down over the last two months, look at what the PMI is telling you or look freight traffic or port traffic if you put all these indicators together, you don’t get a sense that there is any pick up. There have been some fund raising efforts and there are anecdotes, but none of the data shows any real pick up in the investment cycle.
(Sourced from CNBC-TV18)
