The Indian Budget has been greeted with a quiet cheer, a rate cut whose timing caught most of us by surprise and sent the markets to record highs before they sold off again the same day.
The mood in India seems to be one of pragmatic optimism. In short, it is looking good but there is a lot of work that still needs to be done.
In an interview with CNBC-TV18's Senthil Chengalvarayan, Vinita Bali, former MD, Britannia Industries; Dilip Piramal, chairman, VIP Indutries; Rashesh Shah, chairman and CEO, Edelweiss Group; and Ajay Srinivasan, Chief Executive – Financial Services, Aditya Birla Group, discussed the Budget and its ramifications.
Excerpts from the discussion. Please watch the video for the full interview.
Q: Were you caught by surprise, did the second rate cut catch you by surprise?
Srinivasan: Maybe the timing caught us by surprise. However if you look on a broader scale, I think given the view it is inflation linked and given the general benign environment globally plus the talk about China cutting rates, I think you should have expected a rate cut either now or in the April policy. So, maybe the day is a bit of a surprise but the broad timing is not a surprise.
Q: There is also this feeling that one of the reasons for the rate cut is that the presented GDP picture is not rosy as it looks, that India needs some help. Is a rate cut enough to achieve even the rates of growth that the finance minister projected in the Budget?
Shah: I think it is a catalyst. It is not the only catalyst because there are quite a few other things that have to be done. The fact that it came across as a surprise is not itself a surprise because we all believe that, everybody things that the rates are going to come down. So, Reserve Bank of India (RBI) has to actually keep something new in that.
The only thing that can be new is how much they cut and when they cut. I think it is going to be the trend going forward that RBI will cut because inflation has trended down. However it is an important psychological boost that is there.
Overall it will have its own impact on interest costs, on the feeling that inflation has come under control because I think the only macroeconomic parameter that was still over hanging on India was inflation. Now if you can conquer inflation then all of those things are in place.
Q: There is now this one school of thought that feels that with this rate cut April 7, that is when the next RBI policy is going to happen there will be no rate cut then. What should happen in the next one, one and a half months for him to be able to affect another rate cut then?
Srinivasan: I think he is looking at a 2 percent real rate, I think that is one number to look at. The general sense of how fast inflation is trending down or how fast the deflationary trend is gathering pace, I think it will be a mix of those two issues. So, you should see rates coming down, you should see it coming to 7-7.25 percent. The only issue now is in terms of timing and the speed with which it happens. Does it happen with one cut or does it happen with two cuts over a period of time.
Q: As Rashesh said this is only a part of the package. You need far more investment to start coming back. So, has the Budget done enough for you to come back to India from manufacturing outside?
Piramal: More than the Budget it is the overall economic policy and the determination of the new government that is going to attract people to India. What is really required is action on the ground.
Most of these things are not really Budget related. I think all that is happening like the coal allocation is one good example and that is a very positive example and look at the amounts which they got. It took 3 or 4 days later that this news came that more than Rs 1 lakh crore have been garnered and only 10 percent of the mines have been given. No doubt that these are the most lucrative, the best mines.
Q: The focus has been on investment, manufacturing but how badly has consumption been hurt because over the last 2 or 3 quarters purely judging from what we see from company results consumption seems to have fallen off and especially rural consumption seems to have fallen off. How bad is it on the ground and what needs to be done?
Bali: I think the numbers speak for themselves. If you simply look at the last quarter results of corporate India, the results have been fairly muted. So, there are two things, one is what kind of volume growths are we seeing in largely consumption oriented industries and secondly what is the revenue growth that we are seeing. I think margins have been helped by gas prices and fairly benign commodity environment if you are looking at food but there has been consumption, if not a decline then certainly it hasn't been the kind of increases that we have seen earlier.
Certainly as far as rural demand is concerned that has been impacted merely by the amount of disposable money that has been available there. When NREGA initially started they put a lot of money in the hands of people but over a period of time that's kind of baked into the numbers.
So, we are not seeing so far at least a real shift or a large enough shift from a core consumption base, whether you look at consumer goods or you look at white goods like two wheelers and motorcycles and certainly commercial vehicles and cars the story is very different. So, disposable income has been impacted and that directly impacts the velocity of the kind of products that we are talking about.
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