Is India´s Slowdown Permanent?

Cushla Sherlock
, Corporate Communications
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03.04.2012Deepak Parekh, Chairman of the Housing Development Finance Corporation, on what triggered India’s slowdown, the actions required to combat this and why it is worthwhile for investors to build exposure to the country now.

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Cushla Sherlock: Not long ago India was hoping to help lead the world in growth, what went wrong? Is the slowdown permanent?

Deepak Parekh: The slowdown is definitely evident, but I’m confident that it is temporary. In the last decade, India grew at over 9 percent for three consecutive years and the aspiration was that we would achieve double digit growth. Unfortunately global GDP slowed, and as a result, so did we. Compared to the last couple of years, where we experienced a GDP growth rate of over 8 percent, this year we are in a bad shape and will come down to 6.9 or 7 percent. That indicates that the slowdown is definitely there, but I don’t think it’s permanent for a number of reasons.

What are the reasons?

We’ve had policy paralysis in the government. Various decisions have not been taken by the present ruling government because the coalition partners are not gelling and the opposition is not playing ball. As a result the government is unable to take reforms forward.

Some steps have already been taken, are these going in the right direction?

The government has accelerated some decision-making particularly with respect to fuel supply, whether coal or any other raw material needed for power, because without adequate power for industry you cannot achieve a larger GDP growth. These reforms in the power sector indicate that government is well aware of the slowdown need for action.

Is it worthwhile for investors to build exposure to India now?

Yes. I think some shares and equities have been battered down, not because the intrinsic values are not there, but because they are not able to get adequate raw materials, which are government controlled. We had a couple of major scandals last year and that also slowed down the government’s decision-making, but I think this is behind us: inflation is now under check, interest rates have peaked and they will only come down during the course of 2012. I expect that things will improve in the last six months of this year.

Let’s continue looking forward, what will the engines of growth be in India this year?

The service sector is the engine of growth in India. Growth in this sector is about 10 percent and it constitutes almost 60 percent of GDP – the service sector is booming. Agriculture and industry contributes the balance amount and have been hit badly by industry this year. However, with decisions from the government and the fast-forwarding of some reforms, I’m very confident that the industrial growth will come back to 7 or 8 percent.


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