While a large section of corporate India think that the economic rebound is unlikely to happen in 2009 and most of them still want the government to announce more measures to revive the economy, A C Mahajan, Chairman and Managing Director, Canara Bank thinks otherwise. He feels India’s projected growth rate of about 7-7.5 per cent for the current year is a good growth rate given the current global scenario. In an exclusive interview to Business Standard, he reveals what is in store for the country in the new year.
How do you rate growth prospects in 2009: same, better, worse?
Your query cannot be replied in a simple word as indicated in the question. It is necessary to judge the performance of our economy keeping in mind the global economic environment and its impact on our domestic output. You are aware that Indian economy has experienced robust growth trajectory of 9 per cent and above during the last three fiscal-ended 2007-08.
The negative impact of adverse external economic conditions, such as, reduced capital inflows, fall in export demand and reduced external commercial borrowings will definitely negatively impact our growth rate to some extent. Even in this year, when all other major economies are contracting or have slowed down considerably, India’s growth rate is expected around 7-7.5 per cent. Given the global scenario, this is a good growth rate and is accordingly acknowledged by the economists around the world.
What is the top constraint on growth?
Though there is no visible domestic constraint on the growth, the economy experienced spill-over impact in the form of liquidity tightness temporarily during October and
November 2008 as an immediate fallout of the global financial turmoil and withdrawal of funds by FII and drying up alternative sources of external funding, such as, ECB/buyer’s credit among others. Liquidity has since been improved and is now comfortable in the banking system, thanks to a series of liquidity-enhancing measures undertaken by the Reserve Bank of India.
The Government of India has also announced a fiscal stimulus package to boost the economy. But the slackness in demand continues to be the most important constraint on growth. Hence, the only constraints on growth may be due to the lack of export orders, sluggish performance by textile sector and negative global sentiments triggered by happenings in the USA, Europe and Japan. I expect domestic consumption to improve with fall in inflation and better disposable income as redundancies and lay offs are likely to be few and far between in India.
What could restart growth?
Various growth stimulating measures by the government and RBI have already been implemented to revive demand in the economy and spur growth. Some more measures could also be in the offing, especially targeting sagging exports, SME sector and real estate.
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With good domestic savings, investments in infrastructure and thrust on productive segments of the economy could help to regain the growth momentum. Besides, agriculture is likely to post good and bumper harvest which will also spur demand domestically. Banking system, I am confident, will play its due role in providing credit to productive sectors and also to auto, retail, MSME, housing and other segments to provide the much needed fillip to growth and investor confidence.
Where do you see the rupee six months from now?
In the tumultuous financial market, the rupee has seen considerable volatility. I feel, it is difficult to forecast rupee level during a volatile condition that too with erratic behaviour of the US Dollar vis-à-vis important currencies. The rupee, during the last 7-8 months has seen abnormal volatility triggered by external sources and pulling out of foreign capital from India.
I expect the Rupee to recover some lost ground and may stabilise around Rs 45-46 levels after second half of 2009. Rupee may hover around the present level of Rs 47-49 in the first six months and that too if no surprises are thrown by external environments/events.
Will you make new investments in 2009?
We have already ventured into areas like insurance and asset management in partnership with global players in 2008. We think these two areas have a lot of growth potential. We have got approval from RBI to open about 10 offices abroad. We will reassess global economic environment while making the move in this direction.
Will you hire or lay off people?
As a growing nationalised bank, we are expanding our branches and other delivery channels. Unlike other segments, we are not experiencing any slowdown in growth. We have no plan for lay off. Instead we are likely to hire staff - both Officers and Clerks in 2009.
Where do you see the capital markets in 2009?
Capital markets across the world witnessed a severe downturn since September 2008 in the wake of the collapse of Lehman Brothers and numerous long standing players across the world. With most adverse news already factored in, the price of oil declining consistently and the valuations of most companies appearing quite attractive in terms of P/E ratios, there could be some upturn in the capital markets in 2009.