In 12-18 months, we should be back to growth rates that we have been used to
An internet joke ‘Are we back to the 1990′s?’ is doing the rounds highlighting the return of Madhuri Dixit in films, Narayan Murthy in Infosys and weak growth rate of sub 5 percent. The rupee is also under pressure. But KV Kamath, Chairman, ICICI Bank , does not agree with it. He believes in 12-18 months growth will be back to normal, to the levels that we have become used to.
His belief is bolstered by the fact that corporate India is better placed for brownfield expansions not only in terms of removal of red tapes but also in terms of availability of an efficient infrastructure. All the achievement of last 10 years has to be taken into account while talking about sustainable growth. But to transform in a meaninful way, India needs to grow in double digits, Kamath says.
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Kamath does not think the government will allow the rupee to depreciate much beyond 60 since everything that has happened so far has been done consciously. The efforts to stabilise the rupee has not been through market intervention, but more structural. Whether it is allowing FII flows or access to domestic bonds by global investors, every decision has been taken with eyes wide open.
On banking licences, he says if large players come in, they could move fast. But there is a risk of moving too fast. “So I would think, generally, in banking, if you are trying to grow anything over 25 percent, however good you are, the probability of taking mis-steps multiplies in a geometric way, non-linear way (exists),” says Kamath.
Below is the edited transcript of KV Kamath’s interview with CNBC-TV18
Q: Does it looking like the last 10 years was a dream and we have to get used to a 5-6 percent growth for a longish period and rupee depreciating every year by 5 percent or so.
A: I don’t agree with that. I think we have challenges for the immediate future; in 12-18 months, we should be back to growth rates that we have been used to. I also do not believe that we will fall anywhere below the current rate of growth because there are too many things happening in the economy, which will prevent it, but there are also too many things happening in the economy, which prevents it from growing faster.
Q: There was a belief consensus growing that we perhaps have seen the worst already. Q3 of FY13 was 4.5 percent, we crawled perhaps to 4.8 percent in Q4. There was a feeling that from here it is 4.8 percent and then 5 percent perhaps, and more. But with this huge meltdown in asset prices and the depreciation of the rupee, do you think we could be sub-5 percent for FY14 as well?
A: The events that have happened in the last few weeks as it were, if I don’t factor that in I don’t see growth actually dropping below 5 percent. So probably the steady growth would be around 5 percent. I am saying this because there are too many things that have happened for the good which cannot be suddenly yanked away to push us back into 4.5 percent or 4 percent growth. There are too many positives that have happened.
Q: What would they be?
A: For example, start with corporate India. Corporate India is deleveraged except on the infrastructure side where we thought that they are leveraged appropriately the business that they are in, but by and large corporate India is deleveraged. Corporate India can invest at speed, which it could never do earlier because it had to get licences, it had to get clearances, it had to raise money, etc. Today there is cash surplus, by and large most in industries, if it is a brown field site, you do not have to deal with too many clearances.
On the manufacturing side capacity can be built up very quickly. There is a vast infrastructure already built up. Take for example the rural road network, that is what I would really think is the backbone of India. 300,000 km of road built over the last 10 years or so, 60,000 km of highway. The entire telecommunication network, ports, which are significantly more efficient than they were 10 years back, airports which are multiple times more efficient than they were. So we take these for granted at times, but all these put together sustained growth.
We need to study the events of the last few weeks, in the context of exchange rate movement, but at this point in time, we have not had any feedback from any client saying that this could impact us adversely. Indeed, it could impact a few clients adversely, but not system wise because that ways the borrowing impact is still not that severe. People have been careful or have been asked to take care because ECB was not freely accessible and they have behaved in an appropriate manner. So we will have to see what that impact could be, but I don’t see growth coming down significantly below where it is.
Q: China has come to terms with the fact 10 percent growth is not good for the economy, it is creating severe imbalances. They have sold the idea to their population that 7.5 percent is good and 11 percent is not good for you. Do we also have to accept that rather than continue to bemoan an 8 percent for which we couldn’t find the coal, for which we were scanning away mining rights. Do we need to sell that the proper growth which India’s administrative executive bandwidth can manage is not 8 percent, it is really 5-6 percent?
A: China is saying this now and they are already a five trillion plus economy. They went up to 5 trillion, they were very happy looking at 12 percent or low teen growth.
I think for India to transform, we need a growth in double digits, whether it is going to be 10 percent, which is sufficient, or 12 percent, time will tell, but we need to touch that double digit growth for us to transform in a meaningful way and meet expectations in a meaningful way.