With conflicting and confusing cues from the global economy over the past few months, chief economist at HDFC Bank Abheek Barua fells there is still a lot of volatility in the financial sector. The analyst thinks that if the recovery is to be sustained, the Reserve Bank needs to make some kind of gesture to rein in inflation expectations. In this exclusive conversation with Suneeti Ahuja, he enumerates the various reasons for credit demand not having picked up, including value of production input and steep drop in prices of commodities. Excerpts:

•Do you think stimulus packages have adequately supported the corporate and the financial sector?

I think explicit measures taken by the government in the form of stimulus packages were less effective compared with measures that were part of the structural policy process and turned out to be de facto very effective stimulus packages. Measures like increasing government employees’ salaries and waiver of farm loans, which were planned earlier but turned into de facto stimulus packages, were more effective. Apart from this, other things in the policy pipeline, like the NREG (National Rural Employment Guarantee), helped a great deal. The scheme helped reduce the impact of global shock. All these measures are now working reasonably well to ventilate the rural economy from the impact of the drought.

•So are we out of the woods now?

Well, I think if you look at segments of the corporate and financial world, they have done reasonably well. For instance, the automobile segment. I think this segment has benefited a lot from the increase in government employees’ salaries. Increase in salaries also impacted the financial sector as they were able to increase lending to certain segments. Therefore, it has touched the health of financial sector and segments of manufacturing sector that are now doing well.

... contd.