Uday Kotak, CII President, and Managing Director & CEO, Kotak Mahindra Bank is a leading voice of India Inc and the financial sector.
In a wide-ranging interview with IANS, Kotak said the border issue with China has created a strong resolve to build more competitive domestic capacities. “India needs to become economically more self-reliant”, he said. However, complete decoupling with China may not be possible in the near term, given the high level of dependence on the import of raw material and parts for many industries.
Kotak said the growth data for June will look much better than April or May when the economy would have contracted sharply. Overall, the economy could take about a year to return to its pre-lockdown level, but it could be earlier in case demand picks up at a faster pace.
On the corporate trends in the COVID phase, Kotak said this opens a big opportunity for India to become the office and the factory for the world given the widespread acceptance of remote working. Many more companies will allow their employees to work from home, wherever possible. Social distancing will be the norm and digital interfaces will be widely used instead of physical meetings. In manufacturing, factories will use labor-saving technologies to reduce the risk of infection, CII President said.
On the timing of the lockdown, Kotak said the lockdown was implemented at the time to save lives not to protect the economy. “We may have lost many more lives if the lockdown had not been implemented at the time it was”, he added.
On the need for a basic income scheme, Kotak said the discussion on UBI is bound to take place in the current environment. Cash transfers to the poor are already being made but more may be needed. The government will have to see to what extent this is possible and how much can be afforded. “There is a limit to which the fiscal deficit can be increased, as it is already at a very high level if we include both Centre and States”, he added. A comprehensive review of government expenditure is required to see if there are any items where spending can be reduced.
On the recent downgrade of the sovereign rating, Kotak said any further downgrade will leave the country vulnerable to flight of capital. He said rating is an opinion given by the agency and often downgrades have come too late when an entity is already suffering losses.
Commenting on the challenges for NBFCs, Kotak said additional problems will make the road ahead a tough one for NBFCs. “Only the ones with a strong governance record will be able to weather the storm”, he added.
He said Atmanirbhar Bharat does not mean that nothing will be imported but that India will have the capacity to produce globally competitive goods and services.
On the shift in supply chains, Kotak said many multinational companies have been looking to move out of China and many have already moved to countries in South East Asia. India has demonstrated its ability to deliver quality and scale in many sectors and has the potential to attract some of these investments, provided it can provide the right business environment, he added.
Kotak has called for new investments in semi-urban and rural areas.
“The pandemic and the reverse migration that followed has taught us that the urban-centric model we were following is not sustainable. The new investments that will come must be set up in semi-urban and rural areas with proper housing, health, and education facilities for the workers”, he said.
He has cautioned that a moratorium on interest payments would be very risky for the health of the banking system. “The RBI needs to protect the depositors’ interest”, he added. Kotak added that if borrowers do not pay interest to banks, the banks still have to pay interest to their depositors.
Q) With the country in unlock mode, how do you see the ramp-up in the economy?
A) Clearly, as factories and shops are opening, economic activity is picking up pace. Agricultural production is expected to rise, as indicated by the rise in crop sowing so far this year. With abundant labor now available in rural areas, harvesting activity should go ahead without any difficulty. I believe that the growth data for June will look much better than April or May when the economy would have contracted sharply. Overall, the economy could take about a year to return to its pre-lockdown level, but it could be earlier in case demand picks up at a faster pace.
Q) What is your view on the trade issues with China given the border tensions?
A) India needs to become economically more self-reliant. The border issue with China has created a strong resolve to build more competitive domestic capacities. The pandemic has shown that there are many sectors in which the Indian industry can ramp up production and is able to supply at a competitive cost. However, complete decoupling with China may not be possible in the near term, given the high level of dependence on the import of raw material and parts for many industries.
Q) What are the big corporate trends you see emerging in the COVID phase?
A) Many more companies will allow their employees to work from home, wherever possible. Social distancing will be the norm and digital interfaces will be widely used instead of physical meetings. In manufacturing, factories will use labor-saving technologies to reduce the risk of infection. Changes in consumer behavior will favor e-commerce over physical retail. Digital payments will be widely accepted, reducing the need to carry physical currency.
This opens a big opportunity for India to become the office and the factory for the world given the widespread acceptance of remote working.
Q) There is a view that economic recovery will be delayed due to an early lockdown which is leading to a delayed peak of COVID cases in India?
A) The lockdown was implemented at the time to save lives not to protect the economy. We may have lost many more lives if the lockdown had not been implemented at the time it was. The economic recovery has begun since the lockdown has been lifted. We cannot make a judgment on how the economy would have behaved if the lockdown had been implemented later.
Q) What are the reform measures CII would suggest to the government at this juncture?
A) The effort must be towards taking growth to a higher level as soon as possible. For this, it is important to get more investment, both public and private. A competitive business environment needs to be built with land and labor reforms. The high cost of doing business needs to be reduced by investing in high-quality infrastructure including transportation and power. Health and education reforms are required to build a high-skilled workforce.
Q) Is it time to introduce a universal basic income scheme as job losses are mounting?
A) Discussion on UBI is bound to take place in the current environment. Cash transfers to the poor are already being made but more may be needed. The government will have to see to what extent this is possible and how much can be afforded. There is a limit to which the fiscal deficit can be increased, as it is already at a very high level if we include both Centre and States. A comprehensive review of government expenditure is required to see if there are any items where spending can be reduced.
Q) How do you see the recent sovereign ratings downgrade of India by global rating agencies?
A) Rating is an opinion given by the agency and often downgrades have come too late when an entity is already suffering losses. In this case, the rationale for the sovereign downgrade has been the worsening growth outlook and the fiscal risks, which have been magnified following the COVID crisis. Any further downgrade will leave the country vulnerable to flight of capital.
Q) What are your views on capital required for banks?
A) Banks will need to be recapitalized as some of the losses being borne by individuals and businesses will inevitably be transferred to banks. The government should be prepared to provide capital to public sector banks as and when they need it. The same is true for the private sector. The guarantee on MSME loans given by the government will to some extent limit the losses of banks.
Q) The NBFC sector has been facing tough times. How do things pan out post-Covid?
A) The NBFC sector will face the same problem as banks due to the COVID crisis. In addition, most of them lack secure sources of funding in the form of deposits. Many of them are also exposed to real estate assets that are not performing well. These additional problems will make the road ahead a tough one for NBFCs. Only the ones with a strong governance record will be able to weather the storm.
Q) How do you view the call for Atma Nirbhar Bharat and Go Vocal for Local call?
A) The need for greater reliance on domestic products was amply demonstrated during the onset of the pandemic when there was a shortage of many healthcare-related products such as masks and PPEs. Indian industry was able to quickly ramp up their production. Atmanirbhar Bharat does not mean that nothing will be imported but that India will have the capacity to produce globally competitive goods and services. High-quality products produced in India will certainly have a market not only within the country but also in the export market.
Q) What is the trend in the global supply chain moving away from China and the opportunity for India?
A) Many multinational companies have been looking to move out of China and many have already moved to countries in South East Asia. Post-COVID many global companies are looking at broad basing their supply chains as well as markets. India has demonstrated its ability to deliver quality and scale in many sectors and has the potential to attract some of these investments, provided it can provide the right business environment.
Q) What is the CII proposal on shifting to a semi-urban model as reverse migration is also happening?
A) The pandemic and the reverse migration that followed has taught us that the urban-centric model we were following is not sustainable. The new investments that will come must be set up in semi-urban and rural areas with proper housing, health, and education facilities for the workers. Rural enterprises can be set up in areas such as food processing and construction. These can provide jobs without necessitating a high level of rural-urban migration.
Q) There is a debate on the moratorium and payment of interest by borrowers?
A) If borrowers do not pay interest to banks, the banks still have to pay interest to their depositors. A moratorium on interest payments would be very risky for the health of the banking system. The RBI needs to protect the depositors’ interest.
Q) Interest rates are falling but not much credit offtake is there. The depositors are hit with very low-interest rates?
A) It will take time for bank credit to pick up, as we are just exiting a period of lockdown when very few business transactions were taking place. Businesses are still conserving cash rather than expanding their business. Interest rates need to fall in line with inflation and stay low till there is a recovery in growth. Otherwise, it could impede a growth recovery.
