Exclusive: CII chief on what Fitch, S&P and Moody's ratings mean for India

Indian economy bounced back from a three-year low to expand by 6.3 percent in July-September, reversing a five-quarter slide in GDP growth, as manufacturing revved up and businesses adjusted to the new GST tax regime.

However, in its penultimate monetary policy review of the fiscal announced last week, the RBI  maintained status quo on key lending rates while citing concerns over rising inflation. It also retained economic growth projection for the 2017-18 fiscal.

In an interview with Zee Media, Director General of Confederation of Indian Industry (CII) Chandrajit Banerjee shared his views on India's growth prospects coupled with GST and demonetisation, expectations for an upward trajectory and more.

1. GDP growth bounced to 6.3 percent in September. Has India absorbed GST and demonetisation shock?

These were temporary hurdles which the economy has now absorbed. GST was implemented on 1 July and therefore it had an impact in the month of June when firms brought down their inventories in anticipation of lower tax rates in the forthcoming period. From July onwards, normal business operations have resumed.

2. The manufacturing sector slowed down in October though other indicators like IIP showed positive signs. How do you read this?

We do not have data for October IIP as of now and therefore cannot comment. However, given that the festival season began early this year, it is possible that there was a slowdown in growth in October.

3. RBI maintained status quo on repo rate in its latest policy meeting with a neutral stance. Should RBI shift its policy stance to accommodative going forward?

Yes, industry feels strongly that the RBI should shift its policy stance to accommodative and further reduce interest rates so that the nascent economic recovery can be further strengthened.

4. What is the takeaway from S&P, Fitch and Moody's India rating?

The upgrade of India’s rating by Moody’s came as a recognition of the steps taken by the government on economic reforms such as GST, doing business and bankruptcy. CII was hopeful that the other agencies would follow suit but they have chosen to be more conservative.

5. Consumer prices and retail inflation are both on fire, coupled with concerns over oil price surge. In this scenario what can we expect?

CPI inflation at 3.6 percent in October is still below the RBI’s target of 4.0 percent. It is being driven mainly by food, fuel and housing prices. Even if it rises from here in the near term, it will moderate after a few months as most of these are one-off factors. The economy is still in a recovery phase and a broad-based turnaround in investments is still elusive. In such a scenario, inflation is likely to remain contained.