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'India not facing a deflationary threat'

Video: Hitesh Harisinghani

March 23, 2009
The economic slowdown has brought numerous questions with it, but very few answers. For example: How can you and the industry, both, cope with the rising job-loss? How long with this economic crisis last? What is the way ahead?

Dr Ajit Ranade discussed these issues with rediff readers during a chat on Friday. Dr Ranade is chief economist, Aditya Birla Group, a $29-billion conglomerate, with presence in more than 25 countries, in sectors ranging from metals, textiles, cement to insurance and telecom.

He was awarded the distinguished alumnus award last week by IIT-Bombay, on the occasion of IIT-B's golden jubilee celebration of its Foundation Day. He is currently the chairman of the IIT-Bombay Alumni Association and a member of IIT-B's advisory council and the senate.

Here is the transcript:

Ajit Ranade says, Hi everybody, Great to be here.

job asked, What do you think is the main reason for job losses in India? The economy, as the government insits, has not been impacted too badly.. so why are so many jobs beinglost? Are companies using slowdown as an excuse to sack deadwood?
Ajit Ranade answers,  at 2009-03-20 12:59:10I dont think we have massive job losses across the economy. Overall the growth rate of job creation has slowed down. And in certain sectors like gems, textiles there have been job losses.
Sulur asked, While companies are involved in doing cost cutting, individuals are also trying to do the same. Will this not affect the economy more if people stop spending and aggravate the situation?
Ajit Ranade answers, It's true that what is individually rational can be collectively irrational for the economy. So while individuals and companies try to cut costs, the government pursues fiscal expansion to get out of the recessionary environment.
manu asked, hi.. Mr. long will this crisis last???
Ajit Ranade answers, That is a big question. Most economists believe that 2009 will be a bad year for US, Europe and Japan. But in developing countries like India I believe we should see an upswing in economic activity in the latter half of 2009.
cheena asked, Hi, Is India facing a serious deflationary threat in Real estate market ? Still flats are sold for a US rate in many cities in India..Why Govt was so inactive and live in denial?
Ajit Ranade answers, I dont think India is facing a deflationary threat, either in real estate or in the real economy. In some cities real estate, especially commercial real estate has seen a price correction. But deflation means sustained decrease in prices for a long time. That is very unlikely in India.
annu asked, what are growth opportunity in Indian IT market as financial system around the world are crashing ?Do u think after market stablization ,their will be zany growth in I.T market
Ajit Ranade answers, I believe NASSCOM has projected 25 percent growth for IT in FY09 and less than 20 percent growth in FY10. I think IT will grow, possibly slowly despite protectionist tendencies in the west.
Loknath asked, Now Why our central govt. reduce the Central excise duty? is it effect in growth of economy.
Ajit Ranade answers, This is required as a temporary fiscal stimulus to boost demand. Hopefully it will lead to increased sale of industrial goods.
rathod_nisha asked, Hi Ajit, Does the cost cutting really help to restore the economy?
Ajit Ranade answers, India is known for its low cost of production, whether in industry or IT. So our competitive advantage lies in continuous cost reduction. In a recession cost cutting becomes even more important. But expansionary fiscal and monetary policies help counter the recession.
nitin date asked, Sir, what will be the impact of the recent non budgeted Govt Spendings ( Deficit financing ) (due to election sops) on the economy and share markets and isn't there restriction on such spendings of govt as they r spending mine & ur money -taxes paid by us - just for political reasons ?
Ajit Ranade answers, The budget announced in February 2008, much before the recession contained loan waiver for farmers and pay commission increments to government employees. In hindsight this was very useful in cushoning the impact of slowdown. Of course fiscal deficits are financied by tax payers but are necessary to counter slowdowns.
pappu asked, Why do you think does IIT throw up so many top leaders? Could you throw some light on this, please?
Ajit Ranade answers, IIT provides an environment of meritocracy, and freedom of pursuing your passions. It is a crucible where a lot of talented and passionate individuals are put together. It creates long lasting friendships and bonhomie. The IIT system also encourages integrity. The faculty in IIT are also world class. For all these reasons and many more I think IITs produces many leaders.
Johnbook asked, Hello Mr. Ranade. Given that the US Fed has decided to print another 1 Trillion$ yesterday, do you see the $ depreciating big-time against other (Rupee) currencies? Will there be a flight to traditional safe haven Gold?
Ajit Ranade answers, The dollar has remained strong because of risk aversion among global investors and mostly by default. Later in the year as investors get less risk averse (about investing in countries like India) I think the dollar will weaken. Gold is always an attractive investment but its performance is not consistent.
SlumdogReccessionista asked, Airlines and automobiles in India have seen a revival in demand in february .Is it some sign of the beginning of the end of recession?
Ajit Ranade answers, It is a heartening sign however we will need a few more months of data before we can be sure that we are decisively on an upward path. By the way there is no recession in India only a slowdown.
ajithdev asked, will real estate bounce back again in the coming months or by the end of the year 2009?
Ajit Ranade answers, Real estate has two parts - commercial and residential. There is a huge unmet demand for housing in India. Also housing finance has become easier than in the past. Younger people are willing to invest in housing much earlier than their parents. So for all these reasons housing real estate is bound to keep going up. However commercial real estate does have cycles, but there too the longer trend is upwards.
varun asked, , sir, i am varun sharma & i m gng to complete my bachelor in engg B.E {comp .sc.} in may 2009 and i m really very worried abt the job crisis particularly in the IT sector. how long will this Recession go on and what are the fields i can work upon to make myself industry suitable? thank u
Ajit Ranade answers, First of all Varun best wishes. As I said earlier, by NASSCOM projections IT will continue to grow healthily perhaps slower than last year. I would suggest you focus on IT which is less dependent on financial services.
satish asked, Hi, The commodities prices are lower compared to last year. This is the favourable time to start some mega infrastructure projects? Govt can identify such projects and start working on this immediately, so the projects will be in an advanced stage when world economies will start to recover. Trade associations should lobby for this. In India trade associations are very passive.
Ajit Ranade answers, I agree that we need a big infrastructure push. The lower commodity prices are indeed an advantage but often the hurdles are in implementing than funding.
x asked, What is the REAL reason behind this recession? Lack of demand or exponentially growing economies trying to correct itself? Will shortage of nutural resources in future lead to even bigger recession?
Ajit Ranade answers, As I said in India we dont have a recession but a slowdown. But the recession in the West started by bursting of the financial bubble followed by freezing of bank credit, and then collapse of trust and confidence. Shortage of natural resources means that their prices are only going to go up.
sheshu asked, What about the job opportunities for those who are graduating out of colleges this year...companies have reduced campus interviews..what is the fate of such students now??
Ajit Ranade answers, Hi Sheshu, best wishes to you. Indeed there is a lot of anxiety in campuses. I think the job prospects will improve towards the end of 2009. Job seekers should be willing to look at opportunities across sectors and outside metros.
prashanth asked, mr.ajit i have asked many question,but unfortunately didnt get the last question to you. will the SENSEX move upto 15k in coming days ahead or dip down to 5k.
Ajit Ranade answers, Unfortunately I am not an expert on the stock market. If you believe that the stock market is co-related with economy then you should expect the stock market to recover in the later part of 2009.
AlokB asked, Sir, who will convince Govt. of India that ours has to be an Investments Led regereration AND we are different from China, not totally dependent upon exports, have a huge latent market. Stimulas has to be massive Infra investments , expanding the market niches for Corporate sector and ENSURE that SALEABLE housing is constructed for the huge latent ddemand of lower and Middle classes. Housing itself is a demand multiplier.
Ajit Ranade answers, I agree. We are very different from China and much more domestic focussed. Our policies are usually right but we fail, or delay in implementations.
Tirumal asked, why gold prices are going up all the while any good reason
Ajit Ranade answers, In the absence of good investment prospects and gloomy economic outlook investors usually rush towards Gold.
gktripathy asked, Hi Dr. Ranade, Hopefully you remeber me from IGIDR. When will IT industry bounce back, any idea?
Ajit Ranade answers, Hi Tripathy, Good to hear from you. As I said NASSCOM projects more than 25 percent in FY09 and roughly 20 percent in FY10. Beyond that I think we can expect IT to be growing healthily.
Rakesh asked, What will happen if Russia will close itself off from the rest of the world? After all, it has everything in order to be self-sufficient.
Ajit Ranade answers, Russian economy did very well in the last few years because of the boom in commodity prices. Their main exports are in the energy sector. They have a smaller share of services in their economy. But with falling exports some part of their industry had to close down and there has been a decline in output. Thus their export dependance means they are not entirely self-sufficient.
jkapil asked, Hi Ajit - what does our burgeoning fiscal deficit mean fro ordinary Indian? is that a long term threat to our economy?
Ajit Ranade answers, The deficit has to be paid by more taxes or more borrowing, which is actually deferred taxes. Deficits also tend to be inflationary, raise interest rates and make private investments uncompetitive. But in times like these deficits are the lesser evil. Demand stimulus is a higher priority. In the long run we have to control the deficit. Unfortunately I think all democracies, especially a fractious one like India have a deficit bias.
PrashantDeshmukh asked, Sir, i strongly believe that there is no term called RECESSION for india as its on of the biggest market on earth beacuse of its population,but the industrialists are making it feel for the sake of relief packages sir what do you think?
Ajit Ranade answers, I agree that we dont have a recession in India. I also feel that the crisis tends to be overstated, and vested interests sometimes over blow the problem. However it is not to deny that certain sectors of the economy are hurting and require help.
rajib asked, hello this is rajib. with outsourcing being heavily looked dow upon by the obama administration do you think the indian it sector is doomed? i am taking into consideration the fact that we are looking for greener pastures in australia and other countries. yet?
Ajit Ranade answers, There is increasing protectionist tendency in the US. But cost cutting compulsions will force US companies to look at India. Hence on balance I think the Indian IT sector will remain healthy. We must however also diversify into non-US markets, and non-English speaking markets.
arun asked, what is prospect of Pharma industry in job?
Ajit Ranade answers, IT, Pharma, Telecom, Cement, FMCG (Fast Moving Consumer Goods) all seem to be doing well despite the downturn.
NITISH asked, Is the current inflation rate at 0.44% good for the economy?
Ajit Ranade answers, The inflation rate is based on an index. The low rate today is due to the fact that inflation was very high 52 weeks ago. Going ahead I dont think inflation will remain this low. For a developing economy like India a "good" inflation rate is probably 4 to 5 percent.
anirudha asked, Sir I am working in IT Training company for last 9 yrs but i like to change my sector since IT is volatile,will MBA be advantegous for my aspirations,pls also tell how much relevant is MBA in volatile times??
Ajit Ranade answers, India has a huge demand for MBAs (especially quality MBAs). The steep increase in MBA fees is testimony to this shortage. So if you can get an MBA from a top 20 business school I would recommend it.
ragchundi asked, Sir, The dow jones index which had an eighteen years bull run took a negative impact due to the recession over America. How can we say that this recession is shortlived? Do you disagree that the business cycles are unavoidable and they can be adjusted over longer period of time only and in effect why cant we dare to say that this sort of recession we have this time has a prolonged phase!!
Ajit Ranade answers, Business cycles are unavoidable. However the current recession in America is not just a normal business cycle but a correction to huge excesses in consumption, mortgages, leverage and lax regulation. Hence it is prolonged. However the government response also has been unprecedented.
Jit asked, Hi Ajit, Do you think population have impact on slowdown or recession?
Ajit Ranade answers, No I dont think so. Infact India's young population is an asset. Our labour market (age group 15-60) is growing much faster than the population. This is the bracket which is earning, saving, spending, investing and paying taxes. It is a virtous cycle which will last for the next 30-50 years.
jayraj asked, sir, indias exports major part is of IT's though our rupee has weakened but still due to high recession in foreign countries indias IT export has fallen to a greater extent. so will india rupee become further weak in this year?
Ajit Ranade answers, IT exports are lower but still healthy. India's IT advantage is not merely due to weak rupee but due to genuine competitive qualities. If the IT exports can diversify into non-US, non-English speaking markets it will continue to grow for a long time. We must also not ignore the domestic IT market.
mitesh asked, How to deal HR problem in recession, planning to cut employees welfare cost,
Ajit Ranade answers, I am not an HR expert. But I can tell you that preserving your HR talent in the company should be a high priority especially in a downturn. Infact you can also probably poach on high-quality talent from your competitors. Cutting welfare costs should be a low priority. There are many other cost items which should get the axe first. Example: travel, advertising, sales promotions etc.
hemant asked, Hii Ajit!!!i have completed my engg. in 2008 and right now waiting for joining date of d company from last 8 months.i m not able to decide whether should i wait for doj or go for further studies.OR it will be better to work in bpo for few months n wait for joining.but it is very tough to predict market n it is possible that companies can cancel d offer.should i try for economic condition is also not plz guide me sir
Ajit Ranade answers, In a difficult job market it is not a good idea to turn down an offer. But if you are keen on higher studies first secure the admission then you can quit the job.
Ajit Ranade says, Ok guys, it was great chatting with you. Just wanted to reiterate that what we have in India is a slowdown, slower job growth (not jobs contraction) and I see strong recovery by end of 2009. Good luck and best wishes to all of you.

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