Saturday, January 10, 2009

Comment: Getting the facts right!!

Surjit Bhalla writes in Business standard about what the likely growth rates are going to be in FY10 second half FY 09. Cut interest rates, increase fiscal deficits the trade will get better and the focus should be on growth is his general conclusion. And we should grow at healthy growth rates.

Quite unlikely I would think:

1) India has never seen a steady asset price de-growth (if the world is talking about a 20 year asset inflation cycle we are talking 60 + years). Simply put, India has never really been in a recession. About time that corrected.

2) Fiscal space exists but the worry is deflation that too decade long Japan style deflation. Interest rates is possibly the only instrument that the govt. has.

3) Credit Availability: Indian corporates are still unable to avail of credit easily. The situation is better than a couple of months ago, when there was no money, but even now money is available at very high rates - unsustainable for most corporate. Once this changes, we should be in a slightly better shape.

4) The problem of over-capacity: Capacity utilization and productivity are two metrics which would indicate whether we have over built capacity or are we still a long way to go. This is not easy to answer. While we have not built capacity in a lots of areas, in many more we have built spectacular capacities based on specific sectoral domestic consumption/exports. A lot of lenders have taken exposures to this sort of capacity expansion. These guys have a long way to go.

I don't know what the growth number will be, but based on current scenario, 7%+ in FY10 seems unlikely.

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