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Economic slump is real, fallout can’t be ignored: Sundaram Finance MD
With fears of a global recession looming around the corner, the $5 trillion target spelt out by the Centre seems to be a pipe dream, observed TT Srinivasaraghavan, MD, Sundaram Finance, at an MCCI event here.
While global recession in the next 12 to 18 months is scary, numbers and data are only confirming that lack of demand is a point of immediate concern given that the supply or liquidity crunch talks seem to be a thing of the past, he said, participating in a panel discussion ‘State of Indian economy’ hosted by the chamber.
“Biscuits to backhoe loaders, nobody has been spared. The problem is clearly demand,” he sought to point out, citing the impact on diverse sectors. Auto sector is in a tailspin but the construction business too offers no different picture. Housing sector is an integral part of the India growth story, but over the last five to seven years, it seemed to have not gone anywhere. So be it steel, cement, road transport, construction equipment, dumpers and tippers, the knock down was felt in totality, Srinivasaraghavan said.
That the country is in the throes of slowdown could no longer be ignored. Rather than harping on the much maligned GDP, it is the directional stance that was important and relevant. Savings growth, a central part of economies, dropping from 39 per cent to 30 per cent is worrisome, he said. Srinivasaraghavan also said performance of commercial vehicles could no longer be a lead indicator as the shift in the economy was visible – in the form of manufacturing or agriculture to services over the last 10 to 15 years. GST had not only reduced the hassles like octroi in interstate movement, but also with the turnaround time coming down by 20 to 30 per cent, trucking capacity was available. The debate on revision of axle load norms and the scrappage policy for CVs, finally led to only the clearance of one bill that allowed 20 per cent more load for vehicles while “we bemoan the state of everything. The deposit growth is dodgy but not scary,” he said, expressing concern over the private investments not picking up.
“Where is the money going? If it is not going into savings or stock market or purchase,” he said, sharing the upbeat picture given by private sector banks (16 to 19 pc growth), small finance banks (50 to 60 per cent) and micro finance (30 pc and 99 pc collections) when the stakeholders, including him, met the Finance Minister to understand the prevailing ground reality. If consumption is happening, then the GDP or the GST collections must reflect it, he pointed out.
The five-year itch
The other panelists – Sunder Ramaswamy, VC, Krea University and V Anantha Nageswaran, Dean, IFMR Graduate School of Business, Krea University, delved into the ‘state’ of the economy, offering their perspectives.
The 14 major economies, globally, have been seeing a slowdown. The UK and Turkey bore the brunt while in India, the shrink has been more pronounced in the last five years, Ramaswamy said, pointing to the rural slowdown as an immediate indicator – North-42 pc, South-13 pc, West-24 pc and East-21 pc. If the FMCG sector is slow moving primarily due to rural demand, real estate is not immune as 150 other industries connected to it were also reflecting this gloomy picture. Tax collections too were not rising, he sought to point out.
He said right ideas had to be backed by sound planning and meticulous execution but one had to be sympathetic to policymakers too due to every single act being seen as a constant referendum. This is owing to the virtual media influence, he added. Nageswaran highlighted the complexity of compliance, when it came to GST. Just a day after DeMon, in 2016, that dislocation and uncertainty would prevail could be gauged, he said, pointing to the challenges for transitioning from a cash to a cashless economy.
The government revenue, he opined, should be a by-product. Also the national income statistics had turned into a matter of debate while a more progressive measure would have been for the RBI to cut interest rates then rather than waiting till August 2017. This only showed the degree of grey in monetary policy and inconsistent messaging from the government.
Indicators like the average rate of credit, the savings rate coming down by 8 to 9 per cent, debt to GDP ratio and 30 per cent credit card outstanding for four years, showed that the growth rates were not sustainable and the GDP could not possibly grow with low economies of scale. Moves such as loan melas would work in the short-term but only lead to ballooning of non-performing assets portfolio. Instead, incentives could be retained for smaller business acquisitions in the same space, Nageswaran said.