“Talk of recession is completely misplaced,” Rajiv Kumar, Vice-Chairman, NITI-Aayog, said adding that “the RBI has perhaps been overly cautious” in cutting GDP growth numbers.

A home-grown economist, Kumar believes that the economy is in a ‘cyclical’ downturn and says that “we will emerge out of it” with the help of the policy measures that have been announced.

In a quick chat with BusinessLine, Kumar said that banks need to pull up their socks. “That there is a tight credit situation is undeniable from all the data you see. So, we need to improve this,” he added.

“The government has been responding to the challenges and will continue to do so. Attention must be paid to boost exports, address the needs of the agriculture sector and the challenges on the water front” he said. Excerpts:

Do you believe that we are in a phase of recession?

Certainly not! Recession is when you get negative growth in two quarters consistently; we are nowhere near that. Our last reading was 5 per cent, which admittedly was low, but certainly nowhere near recession. Talks of a recession are completely misplaced. That is my firm belief.

What we are seeing is a cyclical downturn from which we will emerge because of the policy measures taken by the government. Some structural bottlenecks also have to be addressed and the government will tackle them as well.

Also read: NITI Aayog’s Rajiv Kumar for more reforms in banking sector

Agencies have been slashing India’s GDP growth targets. How do you read the Reserve Bank of India’s lowering of GDP growth target?

I think the RBI is perhaps being over cautious in trying not to be wrong. I think it may not have fully taken into account the impact of the measures announced in the last couple of months and which may be in the pipeline now.

According to its (RBI) calculations, the second half growth will be 6.6-6.72 per cent; I think, it will probably be higher than that. So, our overall growth will not be 6.1 per cent (as suggested by the RBI), but higher than that. I think the first quarter (2019-20) performance could well be the bottoming out of the cycle and we should see higher GDP growth from the second quarter onwards. Growth in the third and fourth quarters could be significantly higher because of measures announced and being implemented. We will begin to see a cyclical upturn.

Till last year, the discourse was about job losses; now we are talking of jobs created. Where has the shift or change happened? (Not evident)

Let us feel good about the fact that, now, there is talk about job creation and the talk of job losses is over. Job creation, I think, is happening in the services sector, as I don’t see it happening in the manufacturing in any significant measure. Services such as civil aviation, health and private sector and those related to the financial sector, to some extent, are where I feel jobs are being created. Also, I think there may finally be some jobs created even in the real-estate sector in smaller towns and cities.

What is the data you are looking at?

I have been looking at CMIE (The Centre for Monitoring Indian Economy) numbers, which are released more frequently than the National Sample Survey Organisation (NSSO). I am hoping that NSSO will also be releasing numbers with greater frequency.

The latest CMIE report reveals good increase in jobs for the month of September 2019.

You have been talking about Development Financial Institutions (DFI). You think banks are not able to meet expectations?

My point is that, perhaps, like China, India needs specialised banks, which can effectively address sectoral issues. The days of financial super markets may be passé. Even the Warwick Commission, headed by Avinash Persaud, appointed by the European Commission in the wake of the 2008 global financial crisis, of which I was one of the commissioners, had come to the same conclusion. Financial sector super markets do not effectively meet the specialised needs of specific sectors, specially the MSMEs, and often end up with asset-liability mismatches.

Like in China, they have Industrial Commercial Bank of China, Agriculture Bank of China, China Construction Bank, Bank of China (specialising in foreign transactions) etc. In my view, if we can create specialised banks catering to the needs of specific sectors, then, they may perform better.

The central issue is that our credit-to-GDP ratio is 54 per cent; in China, it is close to 200 per cent; in Korea, it is 140-odd per cent. How we raise this credit-to-GDP ratio is the challenge. Such a low ratio perhaps implies that the banking sector is unable to meet the credit needs of the economy.

That, there is a credit need is undeniable going by all the data you get. So I am looking at ways to improve this. This (DFI) is one option on the table and I am sure there are also other options too. But the bottom line is, we need to improve the credit-to-GDP ratio.

Talking about economic upturn, the auto sector is still worried. How do you counter it?

Latest, I heard from Kia Motors — that their soon-to-be-rolled-out model has got huge bookings. So this in itself tells a story. I believe, based on what some industry representatives and observers have said, that the auto sector may need to re-look at its own business model — the frequency at which new models are brought out; their own response to price elasticity — can they discover new buying segments if they were to bring down prices; export strategy. It’s really time for the sector to introspect and we would be happy to work with it to evolve the way forward.

The government has been coming out with packages — corrective measures — to check the economic downturn. Do we expect more packages?

I think the government is constantly reacting to challenges which are emerging or have remained unaddressed. The situation is constantly under review and the government is ready to quickly respond to these challenges There are perhaps some issues on which you will see some response in due course.

...what are the areas that have remained unheard of and untouched?

Not unheard of, but being addressed and measures are in the pipeline. The Prime Minister has himself said that we need to take some tangible measures for promoting exports. That is going to be the key for ramping up our growth rate, going forward. The Department of Commerce will follow up on the major announcement to replace the Merchandise Exports from India Scheme (MEIS) scheme. We need measures to further improve trade facilitation and trade logistics.

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