New Delhi: The Indian economy will be booming by August next year and the worst is behind us, HDFC Ltd chairman Deepak Parekh said Monday.
In conversation with Editor-in-chief Shekhar Gupta at ThePrint’s Off The Cuff, Parekh said there is massive pent-up demand, and in the coming months there could be a spurt in sales of two-wheelers, cars and housing units. This, in turn, will see a surge in consumer credit in the coming year, he said.
“April and May were disasters. In June, there was a ray of hope but July was much better. We are past the hump and we are in for better times. We are improving every month. I am hopeful. There is a massive pent-up demand in the retail segment,” said Parekh.
“The economy will have a positive growth rate next year. The worst is behind us and August will be better than July,” he said, citing an increase in car sales and tractor sales in the last month to further his argument.
“Consumer credit in India is 13 per cent of GDP. It is 80 per cent in the US and 40 per cent in China. Consumer credit is going to boom. Lending agencies will see demand for more loans for white goods, autos, two wheelers and homes,” he said, pointing out that salary cuts in sectors have been mainly in the top 10-30 per cent income category.
However, he conceded that certain sectors like hospitality, travel and tourism are severely damaged and will take longer to revive.
Parekh said the economy is slowly limping back to pre-Covid days, but highlighted that it was slowing down even then.
Asked to comment on what kind of overall environment he expects to see around this time next year, Parekh said, “We will be booming in August next year.”
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‘Divestment should be the top priority’
Parekh said the government has limited fiscal space and will have to raise resources.
“Divestment should be the top priority of the government. The government has to monetise its assets and go in for privatisation,” he said.
Parekh favoured the government bringing down its stakes in state-run banks down to 51 per cent initially and gradually reducing it further.
He said the government has an 80 per cent stake in Punjab National Bank and 79 per cent stake in Canara Bank, among others. However, he added that doing away with public sector banks may not be completely possible as people trust these banks with their money.
‘Entire financial sector will see consolidation’
The entire financial sector will see consolidation in the coming months, Parekh said.
“There will be consolidation in the life insurance and general insurance industry, asset management space, NBFCs, banks. We need larger institutions, not smaller. There will be consolidation in the entire financial system,” he said.
After the NBFC (non-banking financial company) crisis, Parekh said, there is total risk aversion in the financial system. Banks are saddled with high non-performing assets (NPAs) making them reluctant to lend.
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On one-time loan restructuring and rate cut
Parekh also favoured a one-time restructuring for this pandemic as it will ensure that anyone who can’t afford to pay won’t be asked to pay. “One year will give firms and individuals a breather,” he said.
A one-time restructuring allows banks to either extend loan tenures or change payment terms or extend additional loans to ensure that the account is not classified as NPA, thereby forcing banks to set aside more funds as provisioning.
The last such loan restructuring was done in the aftermath of the global financial crisis of 2008.
The Reserve Bank of India (RBI) had announced a loan moratorium beginning March that ends on 31 August. All eyes are on the central bank that is expected to announce its stance over the next few days.
Parekh also said he favours a rate cut in the upcoming meeting of the monetary policy committee (MPC), but added that a “big bang” 100 basis points cut is unlikely.
The MPC is scheduled to meet between 4 and 6 August, with an announcement set for Thursday.
“We have to be concerned about inflation. We don’t believe in big bang announcements. We don’t cut rates by 100 basis points,” he said.
Parekh also said he won’t be surprised if the RBI brings down the reverse repo rates by 100 bps to incentivise banks to lend and not park their money with the RBI.
‘Builders should offer discounts to clear unsold inventory’
Parekh said there is a large amount of built unsold inventory in certain cities.
“It is foolish for a developer to sit on large unsold inventory. They should announce some Diwali bonanza, give discounts and freebies and sell these units to get some cash flows in,” Parekh said.
He pointed out that there may not be a price correction in new projects because of the unsold inventory.
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Regarding the point of asset monetisation & privatisation. I guess the best way to boost a slow moving economy is, by re-enhancing the economic activities.
The expenditure of the consumers need to be at a certain level of satisfaction. Certainly, behavioral trends shows that consumers (middle and upper class) are likely to save more rather than spend.
The irony lies with the lower class of consumers who does not have the money to spend. Thus, this is like an effect which is hampering the economic growth lately.
The best measure I wish should be taken is distributing money among the population, especially among the lower class who tend to spend more and not save. That will ease a lot of thing and slowly will indicate something.
I guess we need to start at a certain point to save the economy, and have to test which way works the best.
Privatization could be beneficial for a certain period, but not in the long run. As, we see in the world, large capitals are running towards the governments to save them. Therefore, we cannot completely rely upon privatization.
This is what I feel would be great if focused.
Regarding your point of lower classes tending to spend rather than save – you’re right and that’s exactly where the problem lies. Savings lead to investments and they lead to channelize towards productive consumption. Small scale spending on essentials will make economy go further deep into trouble and we won’t be left with any money to rescue. All downhill from there.
Also since <1% pay tax we don't have enough fiscal space. This is the right time to sell off all the PSUs, this jargon of strategic sector PSU is a complete hogwash by bureaucrats to retain post retirement postings for themselves. Sell them PSUs.
Thanks for your reply. However, India could be in a stage of Staginflation where selling the public sector will not be a solution. There is no cash in hand. Thus, the pending is less.
The indirect tax on essential commodities are intact and in flow of cash to the central reserve is there. However, what is needed now is to get into a feasible point to save the economy and, I thing selling off the PSU would not pay the price. As, the government has to the take the responsibility for making these “jargon of strategic sector PSU is a complete hogwash by bureaucrats to retain post retirement postings for themselves”.
Indian Economy Will Boom To Explode.Next August Is Only One Year Let US Wait and Watch