National Council of Applied Economic Research has upped
GDP growth forecast for the year to nearly 8 per cent.
Bery, director general, NCAER, says the raised GDP growth
target is on higher industrial, services growth. He is
optimistic on FDI, as he sees the trend stronger than
also believes that interest rate adjustment has more or
less taken place.CNBC-TV18 shares with domain-b
its interview with Bery:
are the triggers for this higher growth rate? If one looked
at your disaggregated numbers, you are expecting higher
services and higher industrial growth. This, at a time
when commodity prices and interest rates are not in favour
of the industry?
We do this forecast as a part of our subscriber product.
The quarterly review of the economy and we issue the press
release following that. The presentation that we made
to our subscribers basically shows the economy as poised
between fundamentals and sentiment.
also did a ''business expectations'' survey and that showed
that the sentiment was indeed weakening. So the obvious
question is, in the light of weakening sentiment, rising
interest rates and a dodgy oil market, why would there
be an increase in the underlying growth?
short answer to that is somewhat a more optimistic outlook
on investment, particularly the FDI. We think that FDI
trends are stronger than we thought they were going to
be and we also feel that the interest rate adjustment
has more or less taken place.
that finally comes out with somewhat higher industrial
and services growth rate. Also, the overall number by
the Economic Advisory Councils forecast for the year ahead,
that came out last week is the same as ours. Our agricultural
growth is actually slightly stronger than what the EAC
way interest rates have gone up now there is a distinct
possibility that the trigger, which set the economy booming
over the past few years, is perhaps going to weaken. So
will there be a possibility that the kind of investment
boom that we are seeing, could end up in some kind of
hard landing in FY08?
I think what has been important, impressive and healthy
about the Indian growth story since the recovery began
in 2002-2003 is that the sectors have rotated. It is certainly
the case that the huge reduction in interest rates coupled
with financial innovation, essentially the development
of retail lending and of the mortgage market, has indeed
stimulated a great deal of interest in the consumer durable
sector and in the housing sector. But what our business
expectations does reveal is that capacity is now being
The India story is playing well overseas. So I am expecting
that there will be a significant private investment recovery.
And in India, as in China and as in most countries, private
investment is driven much more by retained earnings, which
have been strong and by FDI, which is getting stronger.
my expectation is that from a recovery that is led by
net exports, then move to the retail sector, we are now
going to move over to an investment led recovery, both
private and to some extent public as well. But the public
is very much constrained by the fiscal and by the attempt
to hit the Fiscal Responsibility and Budget Management,
FRBM targets, which of course, is the subject of debate
at the moment with the approach paper from the Planning
Commission arguing that maybe some argument to oppose
I think it is responsible for interest rates to rise because
one of the charts that we presented yesterday, showed
how much the gap between Indian short-term rates and the
Fed fund rates has narrowed as the Fed has tightened.
is unprecedented indeed, 8 per cent growth almost for
three years running. Are we setting a base at 8 per cent
or is this the top from where we can go down or maybe
I think all the elements are in place for this to
be India''s take-off decade. What I mean by this is the
decade, where you have a cycle, but that cycle is against
a much higher base than before, and that higher base has
typically been set by industrial growth in other countries
in excess of 10 per cent a year for a series of years.
saw this with Japan in the 1960s, Europe in 1960s, Korea
in 1970s, the Asian tigers in 1980s, China in 1990s and
one''s fervent hope is that in the units, it is India''s
turn. But we cannot take it for granted. Reform is certainly
necessary for this, but it is too early to say whether
we are getting a strong cyclical recovery or whether we
are actually breaking out into the sustained 8 per cent
range, which is what the country is capable of, the country
certainly think we have a reasonable basis for thinking
that it could be sustained for the forthcoming five-year
plan, and that is certainly
the bet international players are making. I do expect
that if one plays our cards right, the FDI will get even
stronger and hopefully, industrial growth would get even