mythili bhusnurmath: Banking on services and agriculture for growth in second half of this year: Mythili Bhusnurmath

If there is trouble elsewhere in the world, why do you think India would be an outlier?
India might not be as badly affected as the rest of the world simply because we are largely domestically driven but that does not help very much given that we are an extremely poor country. We are a developing economy and we need to grow much faster than the rate at which we are growing. Our current estimates as per the RBI is 7.2% for this fiscal and that is just not good enough because we have effectively lost two years due to Covid.

The picture today is very mixed. We have seen fairly encouraging data from the PMI survey of services. That seems to suggest that services are looking up. We have got fairly good numbers as far as core sector growth is concerned but that is mainly because last year was so bad and overall, the Indian economy is certainly not out of the woods.

The rupee depreciating and oil prices not really coming down do not help. We are likely to end this year with a 3% current account deficit. So overall, the picture is far from being bright. It may not be very gloomy but that is not good enough for a country like us.

Last week the RBI Deputy Governor Michael Patra had said that the central bank will not allow jerky movements of the rupee. He even stressed that the Indian currency has seen the least depreciation in recent times. Do you think the RBI is going to work in tandem with the government to keep the growth agenda going?
Well as far as RBI’s policy on the rupee is concerned, the exchange rate is concerned what Michael Patra said was a standard RBI policy and the RBI intervenes to reduce the excessive volatility, it does not have a level in mind. That having been said, the fact is when the rupee depreciates, it also pushes up the price of all imported commodities particularly oil and that has grave implications for our inflation.

At a time when inflation is already very high and as per the RBI’s own admission, we are going to see first three quarters with inflation over the 6% band, the rupee depreciating really does not help your case against inflation.

RBI has at least officially switched gears and the focus is now to fighting inflation rather than promoting growth because the RBI has realised that we have reached a state where inflation has become an impediment to growth and that is where their first focus lies.

Unfortunately the problem is that since RBI is a full service central bank, any fight against inflation also means that it pushes up the cost of government borrowing and the Reserve Bank of India is also the government’s merchant banker. It also has a role to ensure that the government borrows cheap. So basically the Reserve Bank has been caught between a rock and a hard place partly because of its own doing, partly due to external circumstances.

We will have to live with that pain of inflation and growth is going to slow down. Any fight against inflation is going to impact growth. It is all very well to say that the Reserve Bank of India has done this but that is now history. What can we do now? Nothing very much I am afraid. The government has been trying through administrative measures but whatever government raises in terms of tax, will come back to it in the form of higher fiscal deficit. I am afraid there are not too many choices. We will perhaps have to live through the pain.

Which are the sectors that you are banking on if growth is going to go up at least in the second half of this calendar year?
Services is one sector which should look up and which has helped us well throughout the pandemic. In fact, it has done very well.

Also, a very large section of our population depends on agriculture. Agriculture has come to the rescue of the Indian economy again and again. Throughout the years, when both manufacturing and services dipped, whatever decline we saw was cushioned by the positive performance of agriculture. At the moment, monsoons are playing a little iffy. We have seen severe drought waves before the pre-monsoon showers hit India and I think agriculture will come to the support of the economy and services.

Unfortunately manufacturing, where we should be seeing good growth, because that is where the jobs are not really doing well. That will continue to be the position until such time as the government’s capex, that investment in public sector investment and public investment drives in private investment and we see manufacturing also pick up.

So as of now, agriculture and services are the two sectors along with exports which held up so far but are unlikely to do so as global demand comes down. The depreciation of the rupee which normally helps will now be offset by the decline in demand. So, overall, services and agriculture are the two sectors can be banked on for growth in the second half of this calender year.