ICICI Bank managing director and CEO K.V. Kamath has begun his term as the CII president on an “economic optimistic” note.
He said India is likely to cross the 8% growth rate this year, and touch 10% in the medium term. Kamath spoke to Nivedita Mookerji on India’s economic outlook, India Inc’s role in controlling inflation and derivatives losses, among other issues. Excerpts:
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In your inaugural speech as CII president, you said that India is on its way to achieve 10% growth. What are the hurdles and challenges on the way?
The main challenge is infrastructure. Within infrastructure, item number one is electricity generation. Power is the main constraint as projects are of long gestation. There are other challenges as well like environmental assessment and raw material supply.
Are you confident of overcoming these challenges…
I’m saying that despite the hurdles, we’ll hit 10%. That’s because the Indian industry has been ingenuous ….
How worrisome is inflation, according to you?
At 7.5%, it is worrisome. But I have full confidence in the policymakers. We have seen inflation being brought down in the past. In the last four years, twice it has reared its head and twice it has been brought down.
If the policymakers say that it will be brought down to 5.5%, I fully believe that they will. You need action on several fronts - fiscal, monetary and supply. Since there’s clear articulation on that, I believe that inflation will be brought down.
Prime minister Manmohan Singh recently reiterated the need for corporate sobriety, and finance minister P. Chidambaram hinted that India Inc should learn to bear short-term pain even if it meant a cut in profitability, to control inflation. Do you think it’s fair on the part of the government to make such demands?
I think the PM spoke of corporate sobriety in the context of wage increase. It could make us uncompetitive, he felt. And I agree with the PM completely. The solution is to increase the supply of people so that you don’t get into an attrition situation and war for talent where the only solution is wage increase.
That’s what the PM was suggesting and I buy it. If you look at the knowledge part of the industry, they have already implemented it. I think more and more companies will implement it.
As far as product pricing and sobriety is concerned, it’s a question of demand and supply. Also, new capacity has to be created. On the supply side, solutions are being found.
There are several means through which prices will be brought under control. But the government is sending a clear message that if after all this prices do not correct, it is ready with administrative measures, which it will not hesitate to use. Industry has to hear it loud and clear.
Do you think it’s realistic to ask India Inc to bring down profitability?
Profitability can be interpreted in several ways: Cut cost, increase prices, increase production. There are several tools, and the government is sending a message that corporates should use all the tools to help check inflation and ensure that growth does not suffer in the long run.
Did the PM have specific sectors in mind like steel and cement, or was his statement on corporate sobriety more general?
The two specific sectors were mentioned, and there’s no doubt about that. But, there was a larger context to his statement.
There was a recent survey that business confidence in the Indian economy is at its low right now. Do you agree?
As a banker, it’s my job to feel the pulse of my customer. I haven’t seen any negativity at all. The other proof is that there’s no slackening in the $700 billion investment pipeline - no corporate has said that I want to back out. I think the corporate India is still bullish.
What’s you view on banking sector consolidation? Do you see it increasing?
We’ll have to not only consolidate but there has to be a drive in the financial sector to respond to the 10% growth challenge. The financial sector (not just banking) will have to re-invent itself, and that means it has to double its size every three or four years. We have to ask the question: Are we ready for that? I don’t think we are ready for that.
Losses in the MTM (mark to market) derivatives market have been in news…
The total size of the investment in these instruments by the Indian banking system will be less than 1% of the banking assets. So, I don’t know whether we should be worried about it at all. Underlying credit quality has not deteriorated, these are book losses.
The size of it makes it not really relevant. Just to put it in context, when banks had a non-performing assets problem, that problem was 25% to 40% of the balance sheet of the bank. So, by that standard, this is not a problem that you should be worried about.
As CII president, you will be talking to all political parties for various issues. Will bringing FDI into the retail sector and increasing the permissible level of foreign investment in the insurance sector be on your agenda?
We will take up every issue that is relevant to India, and not because it is relevant to any vested group. Some of the sectors you mentioned may be very relevant and others may not be so relevant (in the context of FDI).
He said India is likely to cross the 8% growth rate this year, and touch 10% in the medium term. Kamath spoke to Nivedita Mookerji on India’s economic outlook, India Inc’s role in controlling inflation and derivatives losses, among other issues. Excerpts:
More India business stories
In your inaugural speech as CII president, you said that India is on its way to achieve 10% growth. What are the hurdles and challenges on the way?
The main challenge is infrastructure. Within infrastructure, item number one is electricity generation. Power is the main constraint as projects are of long gestation. There are other challenges as well like environmental assessment and raw material supply.
Are you confident of overcoming these challenges…
I’m saying that despite the hurdles, we’ll hit 10%. That’s because the Indian industry has been ingenuous ….
How worrisome is inflation, according to you?
At 7.5%, it is worrisome. But I have full confidence in the policymakers. We have seen inflation being brought down in the past. In the last four years, twice it has reared its head and twice it has been brought down.
If the policymakers say that it will be brought down to 5.5%, I fully believe that they will. You need action on several fronts - fiscal, monetary and supply. Since there’s clear articulation on that, I believe that inflation will be brought down.
Prime minister Manmohan Singh recently reiterated the need for corporate sobriety, and finance minister P. Chidambaram hinted that India Inc should learn to bear short-term pain even if it meant a cut in profitability, to control inflation. Do you think it’s fair on the part of the government to make such demands?
I think the PM spoke of corporate sobriety in the context of wage increase. It could make us uncompetitive, he felt. And I agree with the PM completely. The solution is to increase the supply of people so that you don’t get into an attrition situation and war for talent where the only solution is wage increase.
That’s what the PM was suggesting and I buy it. If you look at the knowledge part of the industry, they have already implemented it. I think more and more companies will implement it.
As far as product pricing and sobriety is concerned, it’s a question of demand and supply. Also, new capacity has to be created. On the supply side, solutions are being found.
There are several means through which prices will be brought under control. But the government is sending a clear message that if after all this prices do not correct, it is ready with administrative measures, which it will not hesitate to use. Industry has to hear it loud and clear.
Do you think it’s realistic to ask India Inc to bring down profitability?
Profitability can be interpreted in several ways: Cut cost, increase prices, increase production. There are several tools, and the government is sending a message that corporates should use all the tools to help check inflation and ensure that growth does not suffer in the long run.
Did the PM have specific sectors in mind like steel and cement, or was his statement on corporate sobriety more general?
The two specific sectors were mentioned, and there’s no doubt about that. But, there was a larger context to his statement.
There was a recent survey that business confidence in the Indian economy is at its low right now. Do you agree?
As a banker, it’s my job to feel the pulse of my customer. I haven’t seen any negativity at all. The other proof is that there’s no slackening in the $700 billion investment pipeline - no corporate has said that I want to back out. I think the corporate India is still bullish.
What’s you view on banking sector consolidation? Do you see it increasing?
We’ll have to not only consolidate but there has to be a drive in the financial sector to respond to the 10% growth challenge. The financial sector (not just banking) will have to re-invent itself, and that means it has to double its size every three or four years. We have to ask the question: Are we ready for that? I don’t think we are ready for that.
Losses in the MTM (mark to market) derivatives market have been in news…
The total size of the investment in these instruments by the Indian banking system will be less than 1% of the banking assets. So, I don’t know whether we should be worried about it at all. Underlying credit quality has not deteriorated, these are book losses.
The size of it makes it not really relevant. Just to put it in context, when banks had a non-performing assets problem, that problem was 25% to 40% of the balance sheet of the bank. So, by that standard, this is not a problem that you should be worried about.
As CII president, you will be talking to all political parties for various issues. Will bringing FDI into the retail sector and increasing the permissible level of foreign investment in the insurance sector be on your agenda?
We will take up every issue that is relevant to India, and not because it is relevant to any vested group. Some of the sectors you mentioned may be very relevant and others may not be so relevant (in the context of FDI).
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