Till clarity emerges on policy, theres little chance of investments picking up

Updated: Feb 26 2013, 08:16am hrs
Sunil Jain: Good evening ladies and gentlemen.We have with us today a distinguished panel and what wed like to hear from our panelists is whether we can we get an economic recovery and how we can get banks to support it. As we know, capital formation, or the investment levels in the economy, which were at 36% or so about three-four years ago, are down to 29-30% now. Projects have to come to a complete halt and data suggests that fresh project starts are down from R24 lakh crore in FY09 to R4 lakh crore. To begin with, I would like to ask Mr Puri, whether he thinks interest rates are high.

Aditya Puri:I think there is a disproportionate focus on interest rates; interest rates are not the reason for investments having slowed down. If there is a slowdown, it is because of the sentiment and that is linked to banks' lending because banks need to get their money back. There are issues on environmental clearances, there are issues on coal. The sentiment is changing, but you can't expect it to be a tap that you switch on and which will see people rushing to fund projects.

SJ: How many years do you think it will take to get back to 34-35% investment levels

AP: The fiscal deficit is too high as is the current account deficit and you have subsidies and uncertainties in terms of execution. With all these problems we have about 5.3-5.4% GDP growth. I think with action we will be able to do 6% and if we are actually able to implement what we are talking about, then our normal growth rate, without going into what Dr (YV) Reddy earlier said about the inflation corridor, is somewhere between 7.5% and 8.5%. If you get the delta on investments, whether it is public sector surplus that is invested, whether you get the raw materials from the government, that delta will give you the 7%-plus growth rate, which will come within a year.

Ira Duggal: One can't deny that banks have stopped lending, though they are probably justified in keeping it that way.

AP: I don't think there is any issue with credit flow. If you have a viable project today, I don't think we have a problem with finance. But if you don't have a project where I can see viability and visibility and return of my money, then financing will not happen.

SJ: If, for the sake of argument, Jayanti Natarajan says she will clear every project, does India Inc have the financial muscle to raise equity that it needs for these projects

AP: There is no shortage of money and India Inc is not too leveraged, that may be the case in some specific projects. The Indian banking system is safe sound and secure. NPAs (non-performing assets) have gone up, which they do when there is a downturn in the GDP, and restructured loans have gone up substantially, but to blame bankers only for that is wrong. Secondly, let us understand that when the power projects, which are waiting for raw materials, get them, the loans will move from restructured to standard.

ID: Mr.Pieters, have you changed the way you see the Indian economy and the Indian market because of what has happened recently on the policy front

Marten Pieters: What we have seen in the last few years is that growth has slowed down and has had a meaningful impact on our business. Telecoms are very directly connected to the GDP growth and since the GDP has come down, the growth in the telecom sector has come down. I also think that due to some policy issues, the returns for the investor has come down. The perspective, over the last few years, has not been very good for us.

ID: Mr Gupta, you have been a part of some big investments but you haven't done anything recently.

Akhil Gupta: India has one of the most successful growth stories around the world but we are a global company and if the fundamentals and the sentiment towards India comes down, there won't be any capital coming in. To illustrate the change, we are the largest private equity investor in the power sector in India and today I won't waste my time in a thermal power plant. For a market economy the sentiment is very important, unlike a planned economy where things can be dictated. When it comes to sentiment, the amount of damage that was done by last year's budget was really uncalled for. I lost $250 million worth of investments that week.

But we have to be in India, that is the growth destination and even though the discourse in India is towards very populistic sentiments, yet the government has taken courageous steps. We have seen that if we don't take those steps then the economy, which was growing at 8.5% a year, has come down to 5.4%. The important point is that we have a very low per capita income, so we should be growing anywhere between 7.5% and 8% and 5.4% should be like a recession. If I was the Reserve Bank of India, I would drop interest rates by 100 bps (basis points). I think we have to do substantive and symbolic things and this could be a symbolic gesture that can really change the sentiment.

ID: Mr Shankar Raman, what is your sense on domestic private investment

R Shankar Raman: The most positive aspect of the last fiscal has been that there has been no major cancellation. We have some instances of termination of projects in the PPP (public-private partnership) space, but barring those we have not had substantial cancellations. Which means that entrepreneurs who have committed capital are waiting with hope. We need to figure out a way to move forward and the government's efforts at resolving some of the long-term issues has given the private sector some hope.

But if you ask me if the private sector has started placing orders, I don't think we are there yet. We must realise that there is a big agenda in 2014 which is the elections and my belief is that no large private capital commitment will happen when you have an event of this magnitude around the corner. So what will happen is that all the efforts taken to improve the sentiment will definitely help and keep the industry in a better state of preparedness and gives them a good platform to start of with.

ID: Does policy continue to be an issue for the telecom sector

MP: In our industry some of the policies have created a situation where a lot of the capital could have been put to better use. An example is the number of networks. Nobody needs so many networks in Mumbai. So if you look at a country level, better policy would have put capital to better work and we are facing many more of such issues. For example, we have huge networks in India. The industry has added 650 million customers in the last five years although our licences are 18 years old. Now there is a discussion that we might have to have new spectrum. If that happens we have to build new networks and this is expensive, which is not good for investors. I want to say something else. I am very happy with what the chief minister said. There is a lot of opportunity to use new technology and make a lot of the things that we do more effective and efficient.

SJ: There is a feeling that until a new government is in place,we are not going to see much investment. Also, the political class does not realise the importance of capital costs and keeps changing rules in the name of social justice.

Prithviraj Chavan (from the audience): On land acquisition, I realise that it is becoming more and more difficult to acquire land around metropolitan cities like Mumbai, Pune and Nagpur as costs have gone up. So we are now trying to experiment with new themes like returning developed land and not worrying about cash compensation is a formula which will work. Maharashtra has the largest number of SEZs, around 140-odd, but with the change of taxation policy in Delhi suddenly people tried to opt out of SEZs, it was no longer attractive. We have about 27,000 hectares of land notified as SEZs . We now have an exit policy to get out of the SEZ mechanism and you will get lots of land available.

ID: Paresh, to what extent does the government matter to the sector

Paresh Sukthankar: It certainly does because when you look at managing lending for any long-term project, there are clearly uncertainties. Wherever there is dependency on government and global factors, they are clearly typically out of the managements control. But I dont think this is the only factor because by that token certain industries and certain areas would just not have seen bank financing, which is not the case. There have been bank-evaluated projects looking at multiple factors. But memories are not very short so I think when you talk about bank financing new projects we probably look at the projects that have already been financed and have got stuck. Before people bring in new projects on the table, they will look over their shoulders for projects that have been started by other entrepreneurs which are currently stuck and as those get resolved because of whatever changes we have seen in the recent past and if those go on stream then both bankers and entrepreneurs will be comfortable looking at new projects. But perhaps not until then.