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Indianomics: We have to live with low growth rate for the time being, says Soumya Kanti Ghosh of SBI

Updated : November 12, 2019 06:49 PM IST

The September macro numbers are not so good. The industry output figures for September have come in at -4.3 percent and the August numbers also have been downgraded from -1 to -1.4 percent. Seven out of eight major sectors covered under IIP have contracted. This has led to an overall cut in the second quarter and FY20 gross domestic product (GDP) number.

The 8 major sectors are manufacturing, mining, electricity, capital goods, primary goods, consumer durables, consumer non-durables and intermediate goods.

To discuss the falling numbers and likely solutions, CNBC-TV19 spoke with former chief statistician Pronab Sen, Distinguished Fellow at the National Council of Applied Economic Research Sudipto Mundle, and Group Chief Economic Adviser at SBI Soumya Kanti Ghosh.

Sen noted that the country is not in a good spot. “The focus has been on investment revival, but unfortunately, investment is always a derived demand. It always depends upon the investors’ perception of what is going to happen in the future - when will demand pick up and with what strength. So, unless there is a visible change on the demand side, it is not going to affect investments, “he said.

"What the non-durable story is saying in effect is earlier we had a situation where we were not seeing much growth in non-durables but it wasn’t negative. What we are now seeing is negative, which means people are cutting back on day-to-day consumption. This is serious news because it reflects both on the current situation as well as people’s expectations about the future,” Sen added.

Agreeing with Sen that the challenge is on the demand side and that we are in a grim situation, Mundle pointed out that easing monetary policy like interest rate cuts is not having much impact as the transmission is very weak and it is not translating into average lending rates. "The banks cannot reduce lending rates unless they reduce the deposit rates and there they have to compete with high rates on things like small savings, risk-free G-Sec and so on, and they will lose the deposits,” he said, adding that corporate tax cut, though a positive step, is going to make the problem worse as it would result in revenue short fall.

According to Ghosh, the only solution in the current situation is to focus on sector-specific interventions. "Try to declog the NBFC sector as fast as possible because until and unless that sector revives it will be very difficult for the credit crunch to go away. Look into the problems of the telecom sector, look into the problems of the power sector,” he said.

“The October numbers are very scary. The discoms are not buying power from anywhere and in the growing economy the power demand is contracting. So until and unless you solve these problems, I think it will be difficult to reinvigorate the economy; for the time being we have to live with this low growth rate,” Ghosh stated.
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