Stable government policies and an animal spirit is what India needs to get the investment cycle running again, newly appointed president of the Confederation of Indian Industry (CII) Uday Kotak said in an interview with The Hindu. Stating that it may not be right for the government to save sectors that may require structural change, Mr. Kotak added that a demand-side booster will be needed once the pent-up demand is met. Edited excerpts:
What is needed to spur private sector investment?
When most of us feel like, okay, now I can take risk, I will put money to work, I’m going to be entrepreneurial. That is the mindset we need. We need animal spirits. That is number one.
Secondly, we need stable government policies. We need a government which is out there to back risk takers, and not have a situation where risk takers are exposed to disproportionate risk...to ensure that the government is standing along with the risk taker, as entrepreneurs and private investors take decisions to put money to work. We need that entire spirit back for getting India’s investment cycle back.
Is there a need for measures to push demand?
I’ve been speaking to some of my friends in the industry. In the FMCG sector — I’m not talking about soap makers, they are more than 100%, but other segments are seeing 90-95% of the business being back. In the steel industry, production is at 80 to 85%. They are exporting where the returns are lower than in the domestic market, but they’re still recovering more than marginal cost. So, there is recovery towards overhead...people are beginning to find solutions to the challenges and demand has come back in areas like pharmaceuticals, consumer products...If you see the Fast Tag numbers, truck activity is back to 60 to 65%, then power and electricity numbers have been encouraging for May. So, we are seeing a whole host of matrix which say that India is gradually getting back.
Now, when do we give the boost to demand. As the lockdown is easing, there will be a kicker to demand coming from pent-up demand. What we have to worry about is beyond the pent-up demand, if demand starts sliding, that’s the time we really need to focus on the demand side.
We must have an approach which is sequenced and calibrated in terms of boosting the demand side levers and the government has to support it at the right time. But fundamentally, in the medium term, we will have to create supply side opportunities which can further create the demand opportunities.
How confident are we to achieve under the self-reliant India campaign?
First of all, changing a trend requires some major event to happen. China, in 2014, was very strongly entrenched in the world. Now ,the trade war with the U.S. is disruptive, COVID-19 is disruptive.
These points make it possible for global supply chains to think about India as an alternative.
And that may be a window of opportunity for us to establish it and therefore we should go out and make a serious effort for manufacturing in India.
India needs to get, of course, some share of the factory of the world, at the same time, like I have said before, India must dominate as the ‘office’ of the world.
Is there a need for another, more sector-specific stimulus?
Let me ask you a question. Let’s take the example of the airline industry, which is going through a rough patch. If of the about six major airlines, airline No. 5 is having problems, and the government has a limited amount of money, should the government bail out airline No. 5, when four others are going to be competitive and alive and when the same money should be used for healthcare. Let’s take another example, if a consumer has made a choice to shop online as a result of which a mall or a shop is unviable, should the government support that shop and the mall, and take that money away from healthcare infrastructure or sanitation. So these are the choices.
In some businesses, the consumer will decide whether that business remains and the shape in which that business remains. The choice is with the consumer, and it is not right for the government necessarily to jump in to save it when it is fundamentally a structural change.
Moody’s recently downgraded Indian banks. What is your medium to long term view of the sector?
Rating is a view. It is a matter of opinion. If you’re an investor or a lender, you listen to that opinion and take your decision on whether to lend or not, or at what price. But even after the downgrade, we are still not out of investment grade. So, no immediate impact in terms of getting out of the investment grade.
What is important is the rational Moody’s has used in its rating of what India needs to do. So, we need to focus on that which is medium term growth. That is one part of it. On the financial sector, the downgrade of other banks by Moody’s is a follow through of India’s downgrade.
They won’t have an individual company of a grade higher than or rating higher than what’s the grade of India, which is why some of the other banks have been downgraded.
On the more fundamental financial sector view, I think the sector is going to need more risk capital and therefore more capital must be raised by various players. In the case of government banks, it will be the decision of the government, in case of the private sector, it will be a decision of each company in banks or NBFCs, but my advice to all players in the financial sector is go ahead and raise the capital.
Given the job losses and pay cuts, what impact do you see on demand and what needs to be done?
It is bound to impact demand if people earn less money. There is also a behavioural issue. It is one thing to say I will put money into the pockets of people or bank accounts of people, but behaviorally people want to spend less, that is bound to affect demand. That is why confidence building is important. And also using this period to create a structural investment story, which is healthcare, education, nature, more spending in rural India. So you’re creating a foundation for sustainable growth. This time around, I think we must work towards sustainable growth, not a quick fix growth.
CII has suggested that in the short run there is a need to look at lives and livelihood, but ultimately prioritize your spend. Also, re-work on physical versus digital. A lot of businesses are going virtual and digital. That is going to reduce the demand for physical, which will again create potential job losses.
Where does CII stand on the various labour reforms by some States? The industry body recently recommended action against workers not reporting back to work.
My point is India is a free country and we can stay where we want. And if I want to stay in my village, I’m free to stay in my village. I’m not asking for money from the company. When I was in the city, the company, in many cases, decided to fire me. So then my obligation to the company comes out of my contract. So now, I as a migrant, have decided to go back to my village for a lesser amount of money. Therefore, if business and industry, we want a migrant to come back we have to make it attractive for that person to come.
My view is that ultimately we must have a flexible policy but backed by a safety net. In our [CII’s] 10-point agenda, we’ve said, what we need to create as India is a social security framework, along with a flexible labour policy. Both are important.
