Ruchi Bhatia: Where do you see things headed on the GDP front from here on? Are we on the path to achieve the 9.5% target that has been set out for the year?
Sanjeev Sanyal: The number was expected to be significantly high because obviously last year’s base was low. So a number of 20% odd should not be surprising. It does show that a significant amount of momentum has been regained.
It should also be noted in this context that this quarter also saw the big spike from the second wave. A significant part of the economy was in lockdown. So I think we are well on the way to seeing GDP growth rate in double digits. I would not be surprised if our economic survey number of around 11% for this financial year is achieved.
How big a downside risk do you think another wave of Covid could be for India’s growth story?
Most of the high-frequency data does suggest that the economic numbers will be even stronger for the July-September quarter.
This quarter’s performance is not surprising because as the second wave came off, a lot of state level restrictions were removed. Construction and manufacturing that were strong in previous quarter accelerated further in this quarter.
Many of the services that had been closed down are now being opened up. In September they will probably be opened up even further. So I think in Q2 we will see even stronger numbers.
But of course, there is always the possibility of a third wave. Nobody can predict anything. The best we can do is maintain high level of surveillance. But given that the vaccination process is now in full tilt, we are in a position to be able to weather a third wave.
The numbers show a healthy tax growth besides a good recovery in exports. Do you see this trend sustaining?
This I am quite confident about. Our exports have been doing very well. Many of the supply side measures we had done over the last year or two are beginning to clearly feed through. This is not just about recovery of global markets and demand, but about us penetrating many markets.
We are also seeing very strong FDI flows. There is portfolio money as well, with financial markets being quite strong. So I think the momentum build-up in the economy is quite good.
Of course, we need to still watch out a third wave, but I think we are in a good position.
The contact-intensive portion of the economy has not yet made a comeback…
I think we need to distinguish between supply side and demand side issues. Our economic approach has continuously been stressing that there is a supply-side aspect to this Covid shock. There have been supply-side problems internationally whether it is shortages of chips or shortages of containers and so on, but they are different from the demand issue that contact intensive services face.
As far as the supply side issue is concerned, I believe these are getting sorted out as investments are coming through. But as regards contact intensive services, let me say that in things like live entertainment, travel and tourism, a certain amount of restrictions will have to continue because of the risk of a third wave. However, within that constraint, we have eased them up very significantly in a very systematic step-wise way.
For example, in many places you’ll see that even travel and tourism are coming back, at least domestically. Some restrictions will obviously remain for international travel or in case of places like Kerala. But wherever we can open things up, we will open them up, while obviously making sure that health concerns are kept in mind.
What kind of an impact do you foresee for the Indian economy from Fed’s taper?
Eventually, the liquidity conditions will have to be tightened and some of tapering will have to be done. That is a good thing in the long run because obviously you do not want so much liquidity sloshing around forever. So it is not surprising that the US Fed is thinking about this issue.
I think the experience of the taper tantrum last time will make sure that while they do a taper, they will do it in a smooth sort of way. That is something that they will have in mind.
From the Indian point of view, we have built a huge amount of foreign exchange reserves along the way. We will have a significant amount of buffer here to be able to weather this. So I am not particularly concerned about what will happen. There might be some ripples, but we are more than prepared for withdrawal of global liquidity.
As I said, the US Fed itself will be quite careful not to do it too quickly. This is not going to be much of an issue for India because of our foreign exchange reserves. But there are countries in the world which would not be able to withstand a very rapid withdrawal of global liquidity.
Up until now the government was doing the bulk of heavy lifting. This time around, private investment numbers seem to be looking up. How hopeful are you that this trend is going to continue?
We can clearly see private investment coming back in many areas — cement, steel and so on. Also, a large numbers of new unicorns have popped up in the last one year or so. Besides, of course, a huge amount of supply side measures have been done in the last year, and new sectors have been opened up. So I think we are seeing lot of animal spirits coming back into the economy after a long, long time.
Now, the buoyant conditions in the capital markets of course makes it easy to raise risk capital. And the good news is that despite the big shock that the economy went through over the last 18 months, the banks seem to be also in a reasonably good shape. The worst fears of cascading defaults have not come to pass.
Thus, we now have a buoyant capital market and a banking system that can step up its game as and when required. So even if global liquidity eases off, I think in India we are in a position to support rapid expansion of private investment.
The government itself is in a position to do so. Our fiscal numbers are much better than many people had expected. After a lot of the investment in infrastructure and other things, we are in a position to push investment ourselves.
I think our position is good right now. Barring a third wave that is unexpectedly strong, we should be in a good place.