Incentivising credit a key pillar in growth: Saugata Bhattacharya, Chief Economist, Axis Bank

The government has headroom, RBI has transferred more dividend, FCI loans are down, various other dividends from the petroleum companies are expected to be much higher than budgeted, says Saugata Bhattacharya in an interview with ET Now. Edited excerpts:

How do you look at the farm sector growth?

The farm output has seen a record in FY21 as a whole, particularly the rabi harvest which is partly getting reflected in the Q4 numbers. Secondly, in terms of manufacturing, we knew that manufacturing had rebounded very strongly. So it will not just be the Q4 numbers, even the Q3 numbers were also not revised up.

We expected manufacturing to be bleeding, we have heard of the metals sector, of ball bearings, engineering, chemicals and a whole bunch of other sectors that had actually led the growth recovery particularly in Q4 and even in Q3.

Now construction, in particular, had really increased and budgeted for an increase in capex spending in Q4 and even in some parts in Q3, so that would be a source of the increase in construction plus besides that, there was a big surge in residential housing construction. So the two together, in turn, led to the demand for steel, cement and other manufacturing activity, chemicals etc in the process of infrastructure construction.

The overall growth numbers are very close so instead of being minus 7.2 contractions, we were at minus 7.5. We were very close to those numbers and it seemed to reflect that the dynamics we thought were playing out and particularly given some of the numbers, the Q4 financial results, a limited set of companies have come out. I think this is actually close to what we were seeing on the ground given the fiscal numbers and what we understood about consumption is consistent with these GDP numbers.

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Much of the government support has come in terms of guarantees as against real money being pumped. What do you think is the need of the hour? Where do you think is the support really going to come in from?

A couple of points; one part is the guarantees for credit. As you saw from the measures yesterday and the day before, incentivising credit still seems to be the key pillar in the countercyclical response to the slowdown induced by the second wave with ECLGS 4.0, various other measures to try to for the public sector banks and trying to put together products to help the healthcare industry, hospitality, restaurant industry.

But, my worry is that this is not enough. This is about 50000 crores, maybe a lakh crore or whatever but the hole that will probably have been induced in the cash flows, in the incomes of the micro and the small businesses, remember it is these micro, small businesses, these 1 and 2% enterprises, the proprietorships etc which form the bulk of the consuming class, the consumption comes in from these, so if their cash flows are not regularised or cash flows are not restored to a certain extent, the survey after survey is showing that half, 30%, whatever of cash flows have been seriously impacted in this second wave.

My guess is what has been done till now with the rural MNREGA programs is to be replicated in the urban areas as well. The government has headroom, RBI has transferred more, FCI loans are down and in fact, they might have a cash surplus, various other dividends from the petroleum companies are expected to be much higher than budgeted and the government is carrying a large cash balance through the RBI which it can spend. So given all of this, the government has headroom, my own sense is that they should probably start on the programs right away, it is already June, where they should start on their programs right away, the lockdowns are easing and this is the time to come in with fiscal support other than the credit support.

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Many of us are still watching out for the kind of numbers that we will see for FY22. What do you expect?

We are 9 to 10.5% with 60% probability of 9.5% to 10%. So that is the range 9.8% centre, we are waiting for some numbers to see 9.8%, 9.5 to 10% range.



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