The rupee may be depreciating, the Current Account Deficit (CAD) rising and investor confidence sinking, but Confederation of Indian Industries (CII) president S. Gopalakrishnan (Kris) maintains that things are on a reversal. In a chat with Sharan Poovanna, he explains further.
What are the factors contributing to the depreciating rupee?
The concern is about CAD and fiscal deficit. The winding and quantitative easing is driving investments to the US and other developed economies. That’s adding to the problem of investments which were already flowing out of India. Significant amounts of money are flowing out of developing countries and all the BRICS. Brazil, South Africa and Indonesia are facing the same problems as India.
Did India miss the vital signals?
These are not very predictable events. Things that can be predicted are easier to manage. The focus has shifted to elections and added uncertainty. People assume that no decisions will be made around the growth agenda till the elections are over. But we cannot afford to wait till then.
Were we complacent about the ‘insulated’ rhetoric?
Only a very few people predicted the 2007 downturn. In 2011, we were growing at 8.5 per cent; nobody would have said that we would come down to 5.5 per cent. In two years, our growth rate came by down by 3-3.5 per cent.
Do you see the economy falling further? Has the government taken adequate measures?
Hopefully, this year we will grow by 5.5 or maybe 5.3 per cent. In that sense, maybe we have reversed the trend. The government is taking measures; many of them will take time to fructify. To me, the most important thing is rebuild confidence and trust.
The government also needs to stop the increase of fiscal deficit. It may need to continue increasing the price of diesel, so that the subsidy bill can come down.
We are reducing subsidy on one hand and introducing Food Security Bill with the other? Will one outweigh the other?
I am hoping that they will figure it out. The challenge lies in implementation and proper identification of people who actually need these benefits. As it stands, the bill is looking at 67 per cent coverage. Government data says only 22 per cent of the people in this country are poor, so why this vast difference?
Will the currency swap suggestion help?
I am glad that he (Commerce & Industry Minister Anand Sharma) said that he will create a committee/taskforce to look into it and give a report in four weeks’ time. Let’s wait. All these things are steps in the right direction and we need to take action on some of these things.
Indian companies are taking the export route to cash in on the depreciation. Comment?
It all depends on the value addition; you have to look at net of imports. If you look at IT services companies, their value addition is up to 70 per cent. So this in an industry which can gain a lot from the rupee depreciation. However, if the value addition is only 5-10 per cent, then the company is going to get hurt very badly because its import costs have gone up by 20 per cent. That will wipe out their profits.
Do you see imminent job losses?
I don’t really see job losses coming. But job growth is a challenge. We have not seen significant job growth in the last two years. We need to create 10 million new jobs every single year. So we are really falling behind.
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