'There seems to be a bit of a slowdown'

Slowdown could soon be the new buzzword in industrial circles. For the fourth month in a row the growth in the Index of Industrial Production(IIP) has seen a decelerating trend. The July number, which has come in at just 7.1 per cent y-o-y, compared with the revised 9 per cent y-o-y for June, has been a bit of a shocker. With banks lending less""loan growth has tapered off from 27.6 per cent at the end of March to about 23.1 per cent "" and interest rates refusing to come off, there may just be a change of pace. Economic Advisor to the Tata Group Siddhartha Roy tells Shobhana Subramanian the economy may be slowing down.

What do you make of the IIP numbers for July?

There appears to be a bit of a slowdown. If you look at the numbers for May, there are a couple of aberrations in the number because wood and wood products have grown at 118 per cent y-o-y, while food products have grown at 23.7 per cent.

Taken together and weighted, these two account for 5.4 per cent of the 10.9 per cent number that was achieved in that month. In June too, there have been similar aberrations and now in July some of these have got smoothened and the growth rate has been just 7.1 per cent.

How much have exports hurt the IIP?

The rupee's appreciation against the dollar has been higher than the appreciation of the currencies of competing countries, with the exception of the Thai baht. So our exports have become uncompetitive. I feel if a strong rupee is constraining growth, it needs to be reviewed.

To what extent are high interest rates responsible for the slowdown?

Interest rates don't seem to be coming down even though liquidity is not tight. That has pushed up EMIs and hurt affordability. It's clear from the negative growth of consumer durables and transport and transport equipment too have seen a degrowth. I feel finance companies will need to start innovating to get customers to buy; they might have to allow customers an interest rate holiday for the initial period of the loan, for instance.

The demand for cars hasn't been too bad?

That's true but you have to remember that demand is driven by both macroeconomic factors as also market developments. Car sales have been good driven by new models and a section of people wanting to upgrade. But this might be temporary, in the long run the macro factors will rule.

Do you see capex slowing down?

No, I haven't but it won't happen immediately because the projects that are under way will be completed. That's why order books of capital goods companies are still strong. What could happen is that if someone was contemplating a new project, he will think twice before he invests in fresh capacity.

Is the RBI hurting growth in its attempt to curb inflation?

RBI has done well to keep inflation in check. You must remember that oil is now at $74 a barrel and if this increase is passed on at the retail level, inflation will go up again. Otherwise the government will have to bear the cost. It's true that high interest rates may be hurting growth but controlling inflation too is important.

Where do you see GDP in FY08 ?

My assessment would be somewhere between 8.5-9 per cent. I believe services which account for 54 per cent will grow at 10-11 per cent and agriculture with a weightage of 19 per cent will grow at between 3-3.5 per cent. Industry should grow at 9 per cent.