‘It would be wrong to say we have not moved at all: KV Kamath’

A year back, we thought we could get the growth going again in the first six to 12 months. There are certain preconditions but those preconditions essentially revolve around moving things that were stuck in the past five years. These things were stuck for certain reasons. There were certain actions, inaction, wrong actions. Now I clearly see things being addressed. The key issue revolves around land, environment and mineral rights. It would be wrong to say we have not moved at all. We have moved quite some distance. If you look at spectrum, coal auctions… I think in some areas it’s yet to be seen. It’s imperative that they are addressed to keep the momentum going. So our expectations were that in 6 months to one year, certain things could be done.

The second issue is whether the industry has aligned itself to pushing growth. I think they are in the wait-and-watch attitude. My assessment is that this wait-and-watch attitude won’t continue for too long. In any case, the budget will address many issues. The wait-and-watch attitude should be over in the next six months. Then the growth will start picking up. To sum it up, the ground work that was needed to be done was significantly more than many of us had expected, leave alone the government. The government was heroically looking at addressing the need in terms of ground work. They have met with significant success. There are few more things to be done.

Que:What are the three or four things needed to bring growth back on track?
First of all in the infrastructure sector, we need to address all residual constraints. On the land side, it still exists. In environment, things were more or less addressed, mining issues were addressed and we have to see the execution. A lot of these things will happen in parallel. By and large, actions were taken at least to get the stuck projects moving. I expect stuck projects to start moving, particularly in power and infrastructure. Land projects will follow.

The government can become a productive spending agent… you are creating something of economic value through your budget allocation process. The third layer of driver is retail consumer pushing the economy forward. Lay consumers cannot afford things today. On the one hand, inflation was cutting into his pockets and on the other, EMI has increased over the last 3 or 4 years. I think what’s required is interest rate correction. I think if you want to see growth in the momentum and retail consumers are to be the engine of that momentum, the interest rate has to come down by two per cent in the next 12 months or so. Another 2 per cent correction in interest rates will act like the magic and tonic to the efforts that the government is taking.

Que: Do you think expectations of corporate India were overdone? Why is India Inc reluctant to act?
It (industry) wants clarity in policy. I’m sure this government is set to do it. It wants policies which are consistent and stay consistent. These are two preconditions plus red-tape in terms of getting approvals. No doubt this government is committed on doing that. Fourth is making sure that all your inputs, including land and all that things that have stalled projects are being addressed or not. On that front, corporates are waiting and watching. Fifth is consumer demand. On that front also, a large number of corporates are waiting and watching. Having said that, I am not worried about the manufacturing sector… they can very quickly ramp up production. There are issues in infrastructure sector. These are being worked on in parallel..

Que: There’s considerable impatience among investors. Why is that issues related to stalled projects are still not being resolved?
It’s the strength of the victory (of BJP-led alliance) in the last elections. I think it raised expectations that a miracle wand will be waived and things would get back. There are bigger problems than we thought we had and those will have to be fixed one by one. What we need to look at is… is this government going about fixing the problem or not? The answer to me… it’s a resounding yes… and they are fixing the problem. It’s taking longer than we thought because the problems left on the plate are much deeper. I think we should give a little more time.

Que: Is there a deeper structural issue?
We are aspiring people. We have been growing at about 7 or 8 or 9 per cent… The construct of the growth index, base rate, has been reset. We probably know the true and fair picture of how we are growing. All that has been done. Plus the aspirational youth has not gone anywhere. The demographic cut has not gone anywhere. We need to make sure that tending — in the gardening context — is done. Inflation has come under control, interest rate to become correct in the context of consuming and affordability and that of manufacturing and competitiveness.

Que: Would you put any timeframe for a change in the growth momentum?
I would reasonably expect in the next six months there will be a progress. We are seeing concrete actions. We have seen auctions happening. We have seen court processes happening. I think all the players who have to act… they are all acting with a positive mindset. We should see momentum change very quickly.

Que: There have been complaints that the pace of the government action is not fast enough. Do you agree?
The government has worked at a pace which nobody else could have done better. They are trying to address all outstanding issues at the same time. I don’t think hard work has always been visible in what they have done. I would think the problem has been too deeply stuck in so many different areas and getting out is…

Que: Over-leveraging by corporates and the state of their balance sheets is a major concern. How worrying is that compared to the slowdown in the past?
Banks provided credit because there was an underlying project. But conditions changed and projects got stuck. For infrastructure side, typically the gearing has been high. Gearing is because there are elevated types of enterprises. The problem is not that they are functioning profitably or not… the problem is that they are not completed. If you see the period of 2009, projects which were completed are running well. A large part of ports, telecom and power projects are running well.

Que: What happened after 2009? The answer is simple. We have taken certain some steps which got projects stuck. They have been stuck for better reasons and a chain reaction has set in. Unless we undo that, we are not going to get the leverage right. In a large part of manufacturing, leverage is fair and there’s no problem. Yes, infrastructure projects have done in the last ten years with higher leverage. It works when things go as you planned. When spanners were thrown in the works, things will get stuck.

Que: Bad debts have been mounting and restructured loans are collapsing. What is your assessment?
The restructuring done is too shallow. The restructuring should have been deeper in a lot of cases. So now you have slippages. I don’t think there was any slippage at all in the 2000 period. This is because the restructuring was deep and they took the haircut and went off. The lesson is very simple. You need to take a haircut. The haircut was not deep enough this time. Then you will have an idea about the balance sheet of the industry. You need to repair the balance sheet. It can be done in two ways. One is injection of capital. The second is interest rate cycle correction and if there’s a 2 percentage correction, a good part of their immediate problems will be relieved without any fresh capital coming in.

Que: Crony capitalism has been the bane of the country. Is this menace being addressed?
If you look back at history, the whole thing emanates from licence-permit raj. We saw large parts of it coming under some sort of control when we opened up. But in the last ten years what really happened, particularly in areas of government ownership or areas where the government owns natural resources, these sort of situations have slugged. What’s being done to address is putting in place transparent process which is visible to everybody and you’re bidding on that basis. That’s the way forward.

Que: RBI Governor had said promoters have no divine right to remain in control of a company against the backdrop of rising defaults. What’s your take?
It has started happening. If you prepare a list of assets sold by entrepreneurs in the last 20 years, you will get your answer. There has been a dramatic improvement. This happened because of several reasons. The regulator has done a good thing by keeping the banks pushed to the wall on this. Banks have been able to push the clients to the wall. We come from a mindset where a law was passed to prevent even a hostile takeover. Life has come full circle. There’s no excuse if there’s no change in the management. I heard the Governor articulate when you provide fresh money it’s no longer impaired asset. What more can a bank expect?