Sunday, January 07, 2007

India can grow at 8 per cent this year too: CII

The CII expects India to maintain an 8 per cent growth trajectory in the coming year. R Sesahashyee, president of CII gives a detailed check on the ways to maintain this growth.

CNBC-TV18 shares with domain-b its exclusive interview with Sesahashyee:

Three weeks ago, you were quite optimistic despite despite indications that the global economy could be slowing down. Has anything changed to suggest that we could be going for a soft landing in the US?

Not really. I think we continue to see a great deal of optimism at the ground level. Most industry segments are talking about double-digit growth, about increasing capacities.

So I do not see any kind of a concern at the ground level, particularly because a lot of people are looking at expansion of the market footprint as well. So that is good news, although I must say that, in the last few days, there has been some lurking fear about interest rates hardening up and therefore the EMI is going up.

That is a bit of a difficult call whether that is going to affect customer or consumer sentiment in terms of durables.

Will it also affect industry's expansion plans since Indian industry just seems to be getting into the investment mode? Has all that money been tied up at lower rates or do you think that will affect investment plans as well?

I do not think the investment plans are at any risk, but quite clearly even if they had been tied up; most of them are going to be on floating rates. So they have to ultimately reflect the cost of money as it hardens up and therefore the situation could get a bit difficult in some areas, if the viability of some of these large projects are not as robust as they should be.

And if the interest rates do harden up as we go long, then there could be some worry. But at this point of time, I would say that this is a very marginal worry.

What would be areas that you could highlight at this point in time, where we could see some pressure building?

I would say the construction industry, which has been the main driver of economic growth in the last few months, a few quarters. I hope that the hardening of interest rates and these potential plateauing of property does not have an impact in terms of construction industry growth; that is the only major issue that I would highlight.

Are commodity prices a concern? Are we seeing slight hardening there, or do you think this will be offset by demand, if interest rates do not affect demand?

Quite clearly, commodity prices is an international phenomenon in most areas and therefore, if you couple this situation of hardening commodity prices with this possible slowdown in the US market, then you may not need to worry too much because commodity prices will have to soften as well then.

So I do not think that we should worry too much about commodity prices just now on a secular basis.

So there is a possible hardening on commodity rates, but long-term, at least in the medium-term for the year, do you think we are on track for that 8 per cent growth?

I think so.

How much do you see on infrastructure because the CII has suggested the government to come back with further incentives for investment in infrastructure? Do you see that happening?

It is more than the incentive. I think the key requirement now is the sellout, where we had been talking about $320 billion or $350 billion.

Our own reckoning is that has a component of about $77 billion in terms of equity and that is not going to come easily, unless we have a shelf of projects, which have an attractive competitive kind of returns on investments.

But I do not see that and that is an issue, and how are we going to get this kind of money coming in.

So you are saying that the 8 per cent growth won't be affecting this year, but you are seeing that affecting the coming years?

Exactly, I am saying that we have some headroom for growth despite all the infrastructure problems, but sooner than later, infrastructure issues will have to catch up and we will then see impediments in growth.

Unless that is addressed, we have an issue going forward and that is where I think there is an urgent need to make a shelf of infrastructure projects available.

Here the State governments have a large role to play, as unless that is made available, I do not see money coming in or infrastructure bottlenecks getting relieved.

In your own industry, that is commercial vehicles, we have seen numbers looking quite good for December, on hopes that the economy is picking up and roads are being built. But any bottlenecks there?
At this point of time, I have never seen a market as buoyant in the last 15-20 years as we now see in the commercial vehicles, particularly in the main heavy-duty vehicles. So everything seems to be on a roll.

As we go along, there could be some impact, if the interest rates harden up again. But at this point of time, I am quite bullish about the growth rate in commercial vehicles.

Where is the demand coming from for commercial vehicles and what has led to this bullishness?
During the early part of the year, it has been driven by the restrictions on overload, which came in as a result of the court ruling and that has certainly resulted in a huge demand.

But now, I see that as abated and we really now see economic growth driving growth in the fleet size. Of course there is some acceleration I see also in replacement of vehicles and partly because the newer vehicles are giving better returns than some of our older vehicles, both in terms of the fuel as well as in terms of the overall speed and reach.

And I think that itself is creating some demand for replacement.

How much of growth are you targeting in this commercial vehicles segment?

It seems the growth rate is 33 per cent to 34 per cent now and thesend this article to a friend next quarter and I do not see that softening at least in the medium and heavy-duty vehicles range. It continues to be pretty good, although we had a base of last year, which was very high.

So you might see a bit of softening as a result of the base being high last year. I think overall we should easily be about 25 per cent to 30 per cent.
SOURCE:-domain-B

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