Coronavirus cases have started to taper off and with that expectations of opening up of the economy has started rising among people. Uday Kotak, CII president and Kotak Mahindra Bank VC and MD told Anil Sasi and Sandeep Singh that the opening up will depend on vaccination. He said that if we can vaccinate a larger percentage of people and move our vaccination to around 15 crore a month by August, that rate would start providing the comfort on gradual opening up thereafter. Edited excerpts:
The industry took a call on curbing economic activity even as the central government decided against a nationwide lockdown. What made you take that call and how do you see things now?
When I sit back and look, the first wave really did not impact us anywhere near the way that second wave has. We as a nation and each one of us lowered our guard and by Jan we declared victory. Secondly, what caught us by surprise was the variant B.1.617 which hit us in March and has lasted till now.
In the early stages (march end- early April), we were also of the view that we must not stop economic activity but as a few weeks passed and we started seeing problem in Delhi by end of April, that’s the time we at CII said that the situation is getting out of control and we will have to break the chain and curtail economic activity. And we took a call clearly in national interest for a short period of time.
Now that the cases have started to come down, do you think we can plan to open up?
Cases have come down to 2 lakh a day from 4 lakh cases a few weeks back and experts are predicting that it will be down to around 50,000 per day by June end. So should we open up? I think it is a very difficult dilemma which states and individuals face. The clear answer is linked to vaccination and we are probably 3-4 months away from being fully convinced that a large part of the population is vaccinated or covid proof. States will have to look very carefully because the nation is porous and people can move between states and cities. So next three months are crucial and I think I would do it in a very careful calibrated manner, rather than rushing in to open up.
This time around, I would be well prepared for the third wave and make sure, we have enough supplies, even if it means wastage. The cost of human life is much more than potential wastage of medicines or oxygen or hospital beds.
The critical question is if we can vaccinate a larger percentage of people and move our vaccination to around 15 crore a month by August. At that rate we will start feeling comfortable about gradual opening up thereafter.
However, we need to keep an eye on two things — a potential third wave and impact of vaccination on variants. I will watch out for these two, but subject to that, this interim period of three months (July, August and September) is a challenge. Till most of June, the current curtailment of activity in some shape or form is more or less likely to be there, but July to September is a tougher call to open or not to open.
While you say that we need to be watchful till September, how do you see its economic impact and what should be done to address that?
There is more fear this time around and it will have an impact on consumer behaviour.
It is an area of concern and I believe that the time has come for the state to get more active and I would strongly support a fiscal support for protecting livelihood and minimum requirements of individuals and households. I am quite comfortable if we go and spend from the fisc and expand the position. There are absolutely no issues and thats what we need to do.
There will be an inevitable impact on a lot of businesses and borrowers of financial institutions and there are two parts to it. One is the time may have come for the government to be looking at an additional ECLGS scheme including increasing the size from Rs 3 lakh crore to Rs 4-5 lakh crore. That is one thing the government may want to consider. Secondly, there has to be some direct transfer for the poorest of the poor, in terms of supporting them on basic livelihood.
We need to do what it takes. We will figure out how we manage our books down the road but right now we have to ensure that the economy remains in reasonable shape in the next 6 to 9 months.
Is there room for fisc expansion?
The Budget planning has been quite conservative and there is room in the fisc. We have also seen a higher RBI dividend, and also some benefits of food corporation refunds and other things. I think there is room for the fisc to expand and I think the RBI has done the right thing by expanding its asset programme including the GSAP programme.
I think, we have to be clear that Covid 2.0 has been significant bump. We need a strong economy, strong financial sector, ensure that global flows continue to come to India and we need to see that impact on consumption demand is also handled. And that’s why fisc is a good answer.
As for the industry, if you look at the last 12-months, business and industry has done better than it could have been thought in April 2020 and I think it is time for the businesses to step up on the plate and make sure that they handle these bumps and actually support the economy.
Private sector investments and bank lending has lagged. When do you see investment cycle picking up?
Capacity utilisation in the economy is around 63% and for a serious investment cycle to happen, your capacity utilisation has to be at 75-80% at least. One positive is exports. The global economy has recovered better and therefore on exports side India should do better.
There are some parts where investments are happening — healthcare sector.
I think people are going to get more confidence in six to nine months. If we can get out of Covid and Covid 3.0 works without a problem and vaccination happens, I think we will see a relative boom in private investment cycle. My personal view is that 2022-23 is when I believe investment plans will get into serious mode.
While large cos have done well, the smaller companies have been impacted much more. How do you see that?
We are coming to a situation where there are two aspects for Indian industry — cyclical and structural. Cyclical is where you are seeing a downturn or a trough and it should gradually get better. As for structural aspect, in the post-Covid world, the business model itself has got impacted. Structural part is far more difficult to handle and it will require re-skilling, new jobs, and moving away from traditional to more technology oriented. For the first part, you can go and support employment, interim funding and support it, but if there is a structural impact on that particular business will not exist in the form it existed. You have to rethink the future and nature of jobs.
While CII took a call on curtailing economic activity in first week of May, was the decision alongside a discussion with the union government?
We did it on the basis of feedback from members of the CII across the country. The issue at that stage was the number of lives that were getting lost. At Kotak, in one month we lost more lives that in all of the previous year and that shook me and I spoke to other leaders in CII and they had similar situations. If I look at mortality rate in April and May at Kotak, the mortality is 2.5-3X of whole of last year. Therefore when lives are at risk, we had to deal with life over anything else.
On our side, our call was very simple, the employee balance sheet is more imp than financial balance sheet.
As far as central and state governments are concerned, it is up to them to have taken a call and view. So, it really depends on them how they saw the situation across their different parts. Governments are amorphous, is it state government’s, is it central government’s, where does the line draw. Therefore rather than getting into that debate, I think we have to do what we have to do.
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