‘We are keeping fingers crossed on GST’

Reforms are testing the political waters yet again, with the Winter Session of Parliament starting on Thursday. We are counting down to the GDP data coming Monday, and the RBI’s Monetary Policy is expected later next week. Bloomberg TV India caught up with Soumyakanti Ghosh, Chief Economic Adviser, State Bank of India.

This Winter Session is loaded with a long agenda. Given what we had in the previous session, what are we expecting? How is that likely to change the math as far as the Indian economy goes, especially for the GST Bill?

As far as the GST is concerned, we are still keeping our fingers crossed. Hopefully the Bill will be passed in this session. That will be good for the country because the 7th Pay Commission recommendations are likely to be implemented from April 1. As of now we are not seeing any Pay Commission recommendation on the fiscal arithmetic.

But the good thing is that if the GST Bill gets passed, that will help the government to achieve the fiscal deficit targets for the subsequent year very comfortably. It is going to add at least 1 per cent to the overall GDP numbers. That is a good way to start with.

If the GST Bill also moves forward that means the service tax is going to increase from the current level. That would be good for the economy and also good for the government in terms of continuing the capital expenditure which it is currently doing.

What are the current indicators of growth? There has been a pickup in November. Is that merely seasonal and festive in nature?

There are two parts of the index which we publish. One is the year-on-year index and the other is the monthly index. One index does not have any seasonal factor — the year-on-year index. The monthly index contains seasonal factors. The good thing for this data (is that, in) the November index which we have published, the monthly index is also showing traction. It had been on a decline for the last couple of months. So that means the growth momentum is picking up.

If we look closely into the credit data, there has been a pickup in October. Retail loans, as far as our bank is concerned, have grown at a very healthy pace and that has been corroborated by the data which has been published in the RBI monthly bulletin. So that is a good sign. There is also evidence of credit pickup in sectors like road, power, etc. So I think the credit growth is picking up and that is a positive signal. We are very hopeful that in the last quarter of the current fiscal, we will perhaps show a significant traction in terms of GDP growth.

The other big event to watch for next week is the Monetary Policy. Given where we are in terms of inflation, the expectations from the GDP, the expectations from the economy, what do you think is going to be the reaction?

We are not factoring in any rate cut as of now. But we are very hopeful the way CPI numbers have been showing trends. If you leave aside the pulse prices, the CPI is actually at 4.12 per cent. So taking into account all the factors and also the factor that growth has been relatively weak, the last IIP data was very much on the downside and it was actually against the market expectation.

We are still factoring in another round of rate cut. Maybe we can leave out the quantum but we believe that possibly a larger amount of rate cut is in the offing.

After the RBI has cut the rate by 50 bps and the banks have transmitted a large part of that 50bps, there is a significant amount of credit traction which we are looking at on the ground. This indicates that possibly a deep rate cut could revive the economy to a significant extent.

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