Budget 2021

‘India going through a slowdown like 2001-03, but there’s no crisis’

Mumbai | Updated on January 24, 2020

Vijay Srirangan, Director, Bombay Chamber of Commerce and Industry, handing a memento to Rashesh Shah (left), Founder, Chairman and CEO, Edelweiss Group, at the ‘BusinessLine Count Down to Budget 2020’ conference held at the NSE Auditorium in Mumbai on Friday   -  PAUL NORONHA

Forex reserves are at record levels despite the slump, says Edelweiss chief

“There is a slowdown in India but not a crisis situation,” said Rashesh Shah, Chairman and CEO, Edelweiss Financial Group. Shah was speaking at the ‘BusinessLine Count Down to Budget 2020’ event in Mumbai.

The event was presented by Shriram Transport Finance Company Ltd and powered by LIC Mutual Fund. HDFC Bank Spectrum was the associate sponsor; NSE was the venue partner; NewsX was the broadcast partner and the Bombay Chamber of Commerce and Industry was the chamber partner.

Delivering the special address at the event, Shah said he believes that India’s current economic situation is much similar to what it was between 2001 and 2003, the period following September 11 terror attacks in the US.

According to him, what could be termed a crisis is situations like the huge devaluation of currency that some Asian countries faced more than two decades ago or the one that hit global markets in 2008 after the fall of Lehman Brothers; but the current situation is nothing like it.

“Between 2001-03 too we had a problem with banks’ non-performing assets (NPAs), which were almost 18 per cent (to the overall lending book). The GDP growth had slipped to just around 4 per cent and real-estate had slowed down.

“But then, the RBI cut lending rates and the government began its disinvestment programme, during which it sold stake in companies like Hindustan Copper and others. Money was raised and economy kick-started. I remember, the RBI had cut repo (re-purchase) rate from 8 per cent to just 4 per cent,” Shah said.

According to Shah, there are a few positives in the current situation. “Our forex reserves are at record levels despite the acute slowdown. We are attracting comparatively high foreign inflows. Bank lending rates and home loan rates are at 14 or 15 year low. As per my estimate, banks have provided nearly $100 billion towards addressing the NPAs, and we are at the fag end of the cycle. There is intense fatigue and hence extreme risk aversion despite high liquidity with banks. Also, India’s war on inflation has affected growth. In the long run, if structural inflation in the economy is controlled, it will be good but that is a trade-off currently. Another factor is the fight against corruption and crony capitalism, which affects growth. The RBI has enough room on liquidity and it is already doing a good job on interest rates,” Shah said.

Liquidity crunch

Shah said the ongoing transformation of the economy to a formal set-up from the informal one, which includes measures like GST, are all short-term causes affecting growth. In the past 18 months, the demand slowdown was due to the liquidity crunch, he said. Non-banking finance segment too saw curbs, affecting demand.

Shah is of the view that more than the stock markets, which alone cannot absorb all the foreign funds, there is higher interest among overseas investors towards investing directly in real assets like power plants and infrastructure projects even if the yield is around 10 per cent.

Published on January 24, 2020

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