Ajay Piramal: ‘Seeing more focus on manufacturing after long time…service sector alone can’t get desired growth rate’

There is a little bit of uncertainty because of the monsoon and El-Nino effect that is being talked about and when I see that August has not been so great in terms of rain, there is some worry about inflation going up. Overall, I am optimistic and I think that there is an overall stock of food grains. While earlier we were thinking that RBI may reduce rates, now I think they will be a little more cautious. I think they may not reduce for some time.

The economy is in good shape compared to the rest of the world and we are seeing good growth rates and demand for credit.

One concern often being raised is lack of private sector investment. What, according to you, is holding them back?

Capex is really being driven by the government today, but I am optimistic. Generally you see the capex cycle beginning when capacity utilisation hits around 80 per cent and it is currently near 75 per cent. So, I am waiting for that.

People also want to be cautious. They have gone through difficult cycles and have realised that you can’t have crazy capex that you used to do earlier. So, that is good in a way.

Now, I think it is starting and I feel that private capex is beginning. People have started talking much more about it and there are conversations around the PLI scheme and China Plus One strategy and I think there is a movement towards it.

In manufacturing we had lost our competitive edge for a long time and now for the first time I am seeing much more focus on manufacturing. Services alone cannot get us the growth rate we want, and it can’t provide employment to unskilled or lower skilled workers. So, manufacturing is important and that thrust is coming from the supply chain and people looking to diversify.

What according to you is the desired growth rate needed to lift the economy in an inclusive manner and what enabling factors are required?

I think 8 per cent is the growth that we should have. The key thing needed is to speed up the implementation and faster approvals. There has to be an urgency across both Centre and State to do it. The demand will be there. Another important aspect is skilling. Because of low focus on manufacturing over a period of time, they are not available and so we need more skills.

India is pushing to become a key part of the global supply chain, but do you think enough has been done to enable it on ground?

On the positive side when I see the manufacturing side, this whole push on the infrastructure is a big plus because we were uncompetitive on the logistics cost as compared to the rest of the world. I also feel that our real rates of interest are high. While it is fine in comparison to the US today, for too long a time our interest rates, compared to rates at which funding was available in US or Europe, was 400 basis points higher. So, over time we have to see how we can reduce that.

I also feel that there are too many regulatory bodies now and I think they have to work in harmony. The government has gotten out and the regulatory bodies have taken the space and some of them are not in tune with what the government is talking about in terms of liberalisation.

Financial services space seems very competitive and you don’t have a deposit taking licence. How does that limit you and how are you creating space for yourself ?

We are actually very well capitalised and our capital adequacy rate is too high. We have Rs 31,000 crore of net worth which is the third largest among the private NBFCs in the country and our debt equity ratio is 1.2-1.3, so we have scope to borrow. Even if I have to double my book from Rs 65,000 crore to Rs 1,30,000 crore, I don’t think we will need any extra capital.

As far as competition is concerned, if you think India has to grow and become the third largest economy, which I think it will, then credit has to grow at almost 18 per cent. The average credit growth is 12-13 per cent and large parts of India have not experienced any banking or NBFC. So our strategy has been high touch and high technology. We are going into those areas where banks and large NBFCs don’t go and those are virgin areas and there we have now got 13,500 people on the field. So I think there is adequate space.

Are you preparing for a banking license?

Let’s see what happens in the long term. The arbitrage between banks and NBFCs is reducing and we are strengthening our compliance and controls to be compliant with what RBI wants. So that’s what we are doing, we are taking one step ahead.

If you look, India has very few banks and if you want to be the 3rd largest economy, look at the size of our banks and how many banks we have. They are not enough and I think there will be a shortage of credit. Even today if I see corporate lending by banks, they only do to AAA, AA or A rated companies. However, the whole of India is run by BBB companies, small scale, MSMEs and they are not getting funding.