What are your thoughts on today's policy?
It is entirely on expected lines. Take a look at the backdrop to this? unseasonal rains and droughtlike conditions for two years in a row have queered the pitch? global volatility has become somewhat accentuated. Besides, BoJ's rates are in the minus territory, like in the case of ECB last year. True, the below 6% inflation target has been achieved and the WPI is still in the minus range. But I believe that under these circumstances, this is a fairly safe and accommodative policy.
Yes Bank has been fairly heavily exposed to agriculture. That in fact has been your USP. Now, how much has the rural slowdown impacted the small farmer? How difficult has it become for that sector to get credit?
The SME flows, which had decelerated last year, are now reviving. There has been a slight improvement in the underlyings on the back of Pradhan Mantri Mudra Yojana, Mudra Bank, various smaller schemes, and a reviving MGNREGA. Just to put it in perspective, PM's Mudra Yojana has seen commitments of almost Rs 87,00088,000 crore. And that is in for another review as well. So, in my opinion, there is some acceleration happening. It is just that we still see off and on signs of inflation — particularly on the CPI front. But that has a lot to do with these unseasonal rains.
After Modi, Rajan has also talked of some guidelines for startups. In your view, what kind of guidelines could they be? Also, has your bank been extending loans to startups at all?
The startup revolution that we see in India is a significant leap forward. It tells us that we need to convert our IITs and IIMs. We must create innovation districts. The first big thing would be to create infra, warehouses, incubators & accelerators and give them infrastructure status. I would go even farther and say give them priority status. This can create shortto mediumterm winds in the economy. It can start bringing in investments into the newage economy and into sunrise sectors as well. Secondly, there should be ease in terms of starting a business — whether through LLP formation or a singlepartner company, or OPC. Also, closing down should be easier, because not all of them are going to be supersuccessful. In that sense, ease of doing business is extremely vital. Thirdly, there should be some tax breaks given to investors, because they are taking disproportionately higher risks. I would like to see some tax incentives coming up in this budget. That is necessary for startups
Where do you stand in the raging fiscal consolidation debate? Are you with the fiscal fundamentalists, or are you with the more relaxed lot?
I have every reason to believe that the 3.9% fiscal deficit target would be achieved. What is more, I won't be surprised if the Finance Ministry undershoots that by 515 basis points despite the Pay Commission impact. Secondly, the quality arithmetic is going to be extremely important. The quantitatives are naturally more important than the qualitatives. But we have to crowd in new private sector investments, and that is going to be a very important aspect of structural reforms. That will go a long way in determining what happens to GST, and what happens to the bankruptcy code. These are going to be very important enablers in this budget. These might give even more confidence to the RBI post budget to review rates and bring them down.
How many more rate cuts do you think feasible, because too many cuts would mean erring on the side of being too accommodative?
Look, RBI hardwired 6% inflation target is going to be undershot by at least 5060 basis points. It is very likely to veer towards 5% by March 2017. So, in my assessment, the inflation trajectory will become more and more visible. Currently, various global factors are spooking the markets. What is happening in China and Japan, ECB's quantitative easing, uncertain recovery in the US, etc., are weighing on the overall sentiment. India is also undershooting on recovery. Manufacturing continues to be fairly sluggish, IIP data, PMI data, core sector data are unencouraging too. So, I think there is a need to bring down the real interest rates in the economy. The CPI is very important, but I think we should also look at the GDP deflator. Once the arithmetic of the budget becomes clear, I think rate cuts will come. At least 75bps cuts in the later part of this year would ensure that India has a soft landing. It will help us achieve our true potential of 9% growth. In my opinion, 7.4% or 7.6% is by Indian standards somewhat bleak.