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India can grow 8% if rains, policies deliver: Shaktikanta Das

With gross domestic product (GDP) growth up at 7.9 percent in the fourth quarter and 7.6 percent for FY16, Indian economy has met the government’s expectations, said Shaktikanta Das, Secretary, Economic Affairs.

With a good monsoon and better government policies, the annual GDP may touch 8 percent going forward, Das tells CNBC-TV18.

He believes the thrust of the Budget was majorly into capital expenditure, which stood at Rs 2,35,000 crore for FY16. Further, the revenue deficit fall from 2.9 percent to 2.5 percent is another major improvement, he added.

The government is taking numerous measures for the export sector, Das said, adding, private sector investments will take off soon.

Speaking on the Goods and Services tax (GST), Das said the Bill is likely to be implemented by April next year and expects it to boost growth and improve business environment.

Below is the verbatim transcript of Shaktikanta Das’s interview with Latha Venkatesh on CNBC-TV18.

Q: Well the good news appears to be that gross domestic product (GDP) for the fourth quarter has come in at 7.9 percent against our poll which said 7.6 percent. The overall GDP doesn’t change the full year has come in at 7.6 percent as the advance estimates indicated, but there is being reduction in the third quarter – – fourth quarter looks very good 7.9 percent. Would you say this is good news a recovering economy?

A: I think overall it is a good news because the Q4 numbers are definitely very encouraging and it’s a good evidence of the fact that the various measures which the government has been taking over the last couple of years there I think beginning to show results and overall there are green shoots and Q4 number of 7.9 and with the annual figure at 7.6 percent is very, very important for Indian economy, because the previous two years compared to the last two years, the two years prior to that we were below 7 percent growth and now we are back at 7.2 percent and 7.6 percent, so this year hopefully with a good monsoon, we should look at a growth closer to 8 percent and this is as per our expectations and the policies of the government and the reform measures are bearing results and together with that let us also look at 8 core industries data which has been released today, where the growth today is about in the month of April is about 8.5 percent compare to about 6.4 percent in March. Overall, the trends are very, very positive.

Q: As you said 7.6 percent GDP over 7.2 percent in FY15 is per se a very good place to start. I want to come to the demand side private final consumption expenditure has grown by a very good 8.3 percent, but capital formation has contracted in the fourth quarter by -1.9 percent. Is that something that we should brewed over?

A: Let’s look at the capital expenditure of 2015-16 and the annual accounts, the provisional data of the annual account 15-16 have also been released today. Now the capital expenditure that is money flowing out of the budget in 2015-16 stands at Rs 235,000 crore, which is roughly about Rs 38,500 crore higher than 2014-15. Therefore the thrust of the budget has been mainly on capital expenditure and so far as planned expenditure is concerned, in last several years 2015-16 was the first year when the actual planned expenditure at Rs 471,000 crore exceeds the budget figure of Rs 465,000 crore. Therefore that also is a very positive trend.

You have to see that contextually when there are global headwinds when the overall global economic outlook is pretty grim, it’s India which stands out and the capital expenditures are up, the planned expenditures are up, the growth figures are up. Of course, this also calls for more concerted efforts in certain areas on which the finance minister has already spelt out his action plan in the budget. Therefore I think overall the trends are very, very positive and we need to capitalise on them.

Q: It is just that 8.3 percent private final consumption expenditure is damn good. It is just that capital expenditure (capex) in the fourth quarter which is what I was trying to tell you gross fixed capital formation in the fourth quarter has contracted by about two percent. But consumption has gone up, especially private consumption by a solid 8.3 percent. How does all this set us up for the current year FY17 you think? We have two advantages, one that the rains hopefully are normal. Agricultural growth should be a contributor. Again exports perhaps may not do as badly as they did in the previous year because our destination guys have got a little better commodity prices. So, do you think this sets us up for a much better than 7.6 percent GDP growth for the current year?

A: I would think so because in the economic survey we have projected the upper limit of about 7.75 percent. So, as I told you earlier even on exports we have taken a number of measures and we expect a better performance this year and also in agriculture and rural development the various initiatives announced by the government also are being implemented vigorously. So, this year as I said earlier we should look at close to eight percent growth.

Q: There is a vast chasm between consumption led growth and investment. If you took the full year numbers then private final consumption expenditure is growing by 7.4 percent, private gross fixed capital formation is growing only by 3.9 percent. If you only took the fourth quarter it is even worse. Like we just discussed 8.3 percent consumption expenditure while capital formation has contracted by 1.9 percent. In this context you are going to get seventh pay commission number for the second half of this year. Looks like the pressure on prices will be there, not much elbow room for interest rates to go down?

A: In fact incidentally the fiscal deficit and revenue deficit numbers are also out today. The fiscal deficit the provisional figures released by the Controller General of Accounts (CGA) the provisional figures of fiscal deficit for 2015-16 is 3.9 percent of GDP which is bang on target and the revenue deficit very interestingly and very importantly the revenue deficit in 2015-16 stands at 2.5 percent compared to 2.9 percent of GDP in 2014-15. So, in revenue deficit also there is an improvement.

Now, the other point which you mentioned about consumption expenditure and gross capital formation we are dissecting the figures and whatever measures are required to give a boost to private sector investments the private sector investments should really take off to give a boost to private sector investment. Already we have taken a number of measures. The GDP figures are being dissected, we will analyse them and whatever action needs to be taken by government in terms of policy reforms, in terms of initiatives that will be taken.

Let me also add very emphatically that the reform measures, the policy initiatives will continue to be taken and in the Monsoon Session hopefully if the GST gets passed – about which we are very optimistic – if the GST gets passed that also would be ready for implementation from 01-04-2017 and that also will have a significant impact on the way business is conducted and would certainly add to our GDP.