In an interview with ET Now, Dr. Pranob Sen, Principal advisor, Planning Commission, talks about The GDP numbers and what can be expected from RBI hereafter. Excerpts:
ET Now: We have got a reading of 5.5% for the Q1 GDP numbers which has surpassed the expectation of 5.2%. What do you make of this number?
Dr. Pranob Sen: We have been expecting a slight up-tick on the services numbers and that has come about. However, the story is not significantly different. We are talking about a relatively weak corporate sector growth story the investment story is not doing anything.
Therefore, a quarter or two would be roughly similar but may not be as bad as people have made it out to be. This is because the expectations of a poor monsoon had led to a cut back in consumption demand particularly rural demand. A lot of that should be coming back very strongly. So, there are some silver linings to the cloud.
ET Now: The services sector which has so far been contributing to holding up headline numbers is coming under a fair bit of pressure and the expectation is that it could trend lower over the next few quarters?
Dr. Pranob Sen: On the services, there is a very strong base effect that is playing out. Last year in this quarter, the services growth was very high. It was near 9% but by and large the services have held up and that is the heartening thing because there have been doom stories all over the place.
ET Now: Would you believe that one of the main problems for India is that over the last few years, the private investment cycle has not kicked in as it did?
Dr. Pranob Sen: That is not strictly true. During 2010-2011, there was a massive increase in private investment. The government has not eaten into the private savings pool as much as people would like. Private savings pool has gone down very dramatically. The corporate sector has lost its will to invest; the savings are down very significantly.
ET Now: With respect to the movement that you are anticipating from the RBI, do you see them moving on rates on the 17th of September?
Dr. Pranob Sen: It is very unlikely. The point has been made that inflationary expectations have revived. The RBI in its next policy announcement will probably not do anything adventurous. With the recovery of the monsoon, the inflationary expectations will go back on the downward trajectory and so one can expect or at least hope to see something later in the year.
ET Now: We have spoken endlessly in the past about the need to address supply side constraints. Do you believe the government is doing enough on that front?
Dr. Pranob Sen: As far as supply side constraints are concerned, there are a couple of issues that we need to keep in the front of our minds. A lot of the constraints cannot be resolved at short order. The infrastructure constraints are a medium term issue. A lot of the energy issues require policy agreement. There is a medium run dimension to that.
Therefore, it is going to be a process. We should not expect to see the supply side constraints being eased all of a sudden. We should hope to see the policy constraints being taken care of and the revival in investor sentiments which leads back to the supply side constraints being gradually ease off.
ET Now: We have got a reading of 5.5% for the Q1 GDP numbers which has surpassed the expectation of 5.2%. What do you make of this number?
Dr. Pranob Sen: We have been expecting a slight up-tick on the services numbers and that has come about. However, the story is not significantly different. We are talking about a relatively weak corporate sector growth story the investment story is not doing anything.
Therefore, a quarter or two would be roughly similar but may not be as bad as people have made it out to be. This is because the expectations of a poor monsoon had led to a cut back in consumption demand particularly rural demand. A lot of that should be coming back very strongly. So, there are some silver linings to the cloud.
ET Now: The services sector which has so far been contributing to holding up headline numbers is coming under a fair bit of pressure and the expectation is that it could trend lower over the next few quarters?
Dr. Pranob Sen: On the services, there is a very strong base effect that is playing out. Last year in this quarter, the services growth was very high. It was near 9% but by and large the services have held up and that is the heartening thing because there have been doom stories all over the place.
ET Now: Would you believe that one of the main problems for India is that over the last few years, the private investment cycle has not kicked in as it did?
Dr. Pranob Sen: That is not strictly true. During 2010-2011, there was a massive increase in private investment. The government has not eaten into the private savings pool as much as people would like. Private savings pool has gone down very dramatically. The corporate sector has lost its will to invest; the savings are down very significantly.
ET Now: With respect to the movement that you are anticipating from the RBI, do you see them moving on rates on the 17th of September?
Dr. Pranob Sen: It is very unlikely. The point has been made that inflationary expectations have revived. The RBI in its next policy announcement will probably not do anything adventurous. With the recovery of the monsoon, the inflationary expectations will go back on the downward trajectory and so one can expect or at least hope to see something later in the year.
ET Now: We have spoken endlessly in the past about the need to address supply side constraints. Do you believe the government is doing enough on that front?
Dr. Pranob Sen: As far as supply side constraints are concerned, there are a couple of issues that we need to keep in the front of our minds. A lot of the constraints cannot be resolved at short order. The infrastructure constraints are a medium term issue. A lot of the energy issues require policy agreement. There is a medium run dimension to that.
Therefore, it is going to be a process. We should not expect to see the supply side constraints being eased all of a sudden. We should hope to see the policy constraints being taken care of and the revival in investor sentiments which leads back to the supply side constraints being gradually ease off.
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