10% GDP growth rate possible: Deepak Parekh

Says sustained lower inflation could facilitate sharper cuts

With the country’s stock market at a new high, global crude oil prices declining and a stable government at the Centre, Deepak Parekh, chairman of Housing Development Finance Corporation (HDFC), believes India is in an “exceptionally good condition to again look forward to the much-aspired 10 per cent economic growth.” But there is a caveat; Parekh goes on to say he “would not even hazard a guess” by when such a rate could be achieved.

“Suffice it to say that a 10 per cent GDP (gross domestic product) growth rate will not happen without extensive judicial, electoral, police, labour and land reforms, as also financial-sector reforms,” Parekh said at an event in Mumbai on Saturday.

He said much needed to be done to attain even a 6.5-7 per cent growth rate, but the veteran banker was quick to add “things have dramatically changed” with the induction of a new government at the Centre and a prime minister who led from the front. “There is an increased confidence. India has a prime minister leading from the front and key macro fundamentals are also working in the country’s favour.”

The rupee’s recent stability — with India’s current account deficit likely to be contained at two per cent of GDP, against 4.5 per cent in 2012-13 — is being viewed as one of the green shoots of recovery for the country’s economy.

Also, the fact that India is performing better than other emerging markets on many parameters is also fuelling the hope of a stronger GDP growth rate. Parekh said research analysts had already started betting on India by calling it the “best house” in a bad neighbourhood. “To borrow the latest buzz phrase from Bill Gross, India is considered the “cleanest dirty shit” among emerging markets,” he added.

Government expects growth in the current financial year to be between 5.4 per cent and 5.9 per cent. The growth rate had been below five per cent in each of the past two financial years.

On Friday, Paris-based think-tank Organisation for Economic Cooperation and Development (OECD) revised its projection for India’s growth rate this year to 5.4 per cent from 5.7 per cent in September, as the global recovery continues to be moderate. Even as market participants and corporate India demand lowering of interest rate by the Reserve Bank, Parekh has a different stand on the issue. He favours rate cuts only when inflation is firmly under control. “One hopes to see a sustained lower inflation facilitating sharper rate cuts, rather than the rate bobbing up and down marginally, by 25 basis points. A short-term approach never results in effective monetary transmission,” he said.

Parekh also cautioned that a lot was required to be done to ensure the present optimism about the economy lasted. "We are riding a feel-good wave and we are lucky it has lasted so long. But time is ticking fast. The progress of the new government is being increasingly scrutinised and living up to the built-up expectations will not be an easy task."

He said the system could expect to see a lower interest rate environment with sustained low inflation over the next one or two quarters. Demand by industry and the market for a lower interest rate has increased since data revealed retail inflation in September eased to 6.46 per cent, the lowest since a new series was launched in January 2012.