India in a sweet spot; data to take a bit more to reflect recovery: K Harihar, FirstRand Bank

In a chat with ET Now, K Harihar, Head, Global Markets, FirstRand Bank, shares his macroeconomic outlook. Excerpts:

ET Now: The government is in a good position to spend. But why are we not seeing the benefit of higher government spending? The latest IIP numbers do not reflect any improvement in overall sentiment. Why so?

K Harihar: One reason is under-utilisation of capacity. At times it is the consumer durables, at times it's the consumer non-durables. Consumption levels have not really picked up. The situation is not conducive for industrialists to set up new capacity.

It's clearly going to be a case of lagged effect; it will take some time for industry to take big decisions.

Talking of interest rates, most of the large investments by big industrialists have been funded either through ECBs or debentures. The debenture cost has really come down by 150-175 bps over the last nine months.

We definitely need to see India consuming a bit more. That is going to be linked to government spending.

It has to do with the monsoons too. It is a very good thing that the monsoons have picked up. Most of India seems to be getting a decent amount of rains.

Besides, international cereal and commodity prices are at multi-year lows. So, with the kind of forex strength that we have, we have the ability to import whatever we need and keep inflation numbers low. As a consequence, interest levels will remain low too.

Therefore, we are in a sweet spot. Things will look up, albeit with a bit of a lag.