HDFC Bank’s chief Aditya Puri spoke to BT’s Anand Adhikari about the state of India’s economy. Edited excerpts.

BT: What are the risks to growth given the US Fed rate hike and slowdown in China?

Puri: Some things have to be recognised as realities. Has there been a slowdown in the global economy? The answer is yes. And we have to recognise it. Nobody can be immune from that slowdown, but obviously the effects of the slowdown are different for different countries. The Fed hike has been hyped for so long. We had all along been saying that it will be good because the flip side of the coin is the US economy, which is stabilising and going up. The Fed hype actually came and went without (much volatility). Will there be a couple more hikes? If you listen to the Fed commentary, the hike will only come if it doesn’t disrupt the growth trajectory. In my view, it won’t be substantial.

BT: Will there be more surprises from China?

Puri: As far as China is concerned, there are two views. One is the positive view, which is saying that at least there is no hard landing in China. Some people were talking about a collapse. Has it slowed? That is a reality. There is already a debate on how much it has slowed. What is also reality is that they are moving from more export orientation and manufacturing to service so that there is local demand. They want to create local demand.

China will slow down. We must recognise that China was the engine of global growth for the last 10 years. As of now there is no new engine for big global growth. That is affecting our exports also, which in turn affect GDP. However, within all this, India still is affected slightly less because the RBI and the government have taken into account what needs to be done to ensure that Fed hike doesn’t affect us. Today, inflation is under control. We have a strong reserves position. Our current account deficit is under control. Export slowdown is a reality, which is here to stay.

BT: Is 8 per cent GDP achievable?

Puri: We will grow about 7.5 per cent this year. Given the situation in the world, the global growth is good. Never in our history have we had three monsoons that have not worked – recognising that that it is coming on the back of two failed monsoons. Rural demand has been a little tepid. If rural demand comes in, growth will get a boost. A lot of projects have been de bottlenecked, new government spending has happened, the project has been given out in roads, railways, irrigation etc. The power sector is also moving. We should see GDP (growth) somewhere at 8 per cent, which seems to be very valid assumption to make.

BT: There are some who say there are risks of depreciation in the Indian currency…

Puri: India’s currency has been largely stable with some minor depreciation. I think that situation is likely to continue. China is devaluing largely because it also has to find a place for its exports. So, what they will do will definitely affect us. The competitive devaluation doesn’t help anybody. Let’s hope we don’t go down that path. So far as our currency is concerned, we will see some going down but not any major depreciation in rupee

BT: Given the government’s commitment to fiscal consolidation, do you think there is a limitation for government to prop up public investments?

Puri: I am of the firm belief that demand creation is the issue as of now. Investment will follow demand. I think the government has done a lot. I do believe that if there is to be a balance between, say, maintaining fiscal deficit at the current 3.9 per cent and spending higher, and delaying consolidation by a year as compared to trying to move to consolidation and having to cut government expenditure, I would very strongly be on the side of delaying fiscal consolidation not for going worse than 3.9 but 3.7 and 3.5 per cent especially given the fact that we have low inflation, negative WPI and demand is not an issue.

The government is being constrained by nominal GDP not growing at the rate it had grown in the past. I think the top priority for me is government spending at this point of time and fiscal consolidation can and should wait.