KV Kamath, chairman, ICICI Bank and Infosys, isn?t too worried about the Indian economy slowing down. By his reckoning, GDP is still clocking 10%, the data notwithstanding. Kamath tells Shobhana Subramanian that although there may be problems with sectors such as power, the services space will provide adequate momentum for the manufacturing space to grow.
What do you make of the slowdown in the economy?
Perhaps companies are not growing their top lines and profits as fast they were. But the interest rate cycle is peaking and that?s a huge trigger for sentiment. The biggest pain is in infrastructure; the power sector should worry us, urban rejuvenation should worry us. There is no way you will see investment going in given the situation on the ground and that could cause problems for our power needs 3 years down the line. Urban rejuvenation becomes key not only to rebuild a city but also for a city to support migrants. But, despite the challenges, telecom is meeting needs of customers, ports continue to meet demand. For an India with a GDP of $2 trillion plus we will need to add capacity. But constraints I had imagined 10 years back are not there.
What about the shortage of labour?
Urban India says we don?t get the people to work in factories; I don?t hear that in rural India. Yes, there is a problem getting people at the wages that you were paying in the past. But you negotiate a new wage and he is available. When I look at that new wage, it is 60-70% higher than what he was paid 3 years back. I am in a way happy because it is a re-setting of the wage equation which should have been done quite some time back. You notice the change is that he has a child going to school and he is prioritising that child?s going to school ahead of his taking this job. And to me this is a social disruptor in a very positive way. We then need to learn to be a market economy. Honestly, our wage levels are at such a level where we can have a whole lot of re-setting happening and we will not reach an uncompetitive state in the near term. We have 10-15 years to go before that happens to us.
Is there a real danger that Indonesia will replace India
in BRICS?
No. Our rate of growth is not slowing down to the extent that economic pundits are saying. Ultimately we have to go by what we see around us. Direct taxes have risen 15% yoy in the 9 months of this year, and a significant part has come from incremental incomes. So there?s no question of Indonesia replacing India; if Indonesia is added to BRICs, I will be delighted. Let?s add South Africa and let?s call it BRIICS.
What in your opinion is a secular sustainable growth rate for India over the next few years?
A minimum of 10%. Today we are at 10% but nobody wants to see it. We talk of 7% and 6.5% but I have huge doubts about the numbers. In the past when we were growing at 9%, the growth rate was actually 9% plus. We don?t count what we ought to count. Our data points are all wrong. We don?t reset our
indices. The bigger piece is unaccounted; it was always there but it is also growing and we should not stop counting it. So whether it is 9%, it is plus plus, whether it is 7%, it is plus plus. We need to look at anecdotal evidence and we need to look at it by taking a psycho-socio moratorium, by not looking at
influences?let us say the press ?for a few days, by not listening to the economists and just observing.
If things are not all that bad as you believe, why is Indian industry so miffed?
If my stock is at 40% of what it was a year and a half back and I have pledged shares, my mood is negative. There are a whole lot of causal reasons why the mood is negative; the financial state is no longer dire.
CRISIL recently put out a report pointing out that Indian industry?s interest coverage is at a five year low?
Let me put this in context. When we were in the growth phase and we were lenders, we looked at
repayment capabilities over 8-10 years. Today we are looking at ebitda which should cover debt in 4-5 years. We see in the appraisals that we do that the time is down by virtually half. We worked on 3:1 or 3.5:1 gearing; today I don?t find any company geared more than 1.5 or 1.6 times, including working capital, except for infrastructure.
So growth will recover?
Did anyone believe that India would change so much between 2000-2010? I can tell you that I did not believe things would change so dramatically. In 2000 if you had looked at the NPAs and restructured debt for India, you wouldn?t have believed how dire it was. Who improved it? The companies themselves, through hard work. By 2003 they were ready to compete and that?s the resilience of Indian industry. That took the GDP from half a trillion dollars to over a trillion. I see that same momentum happening as we go from a little over $1 trillion to a little over $2 trillion in the next 7-8 years.
Then why is there all this talk about industrialists investing overseas and not in India?
In a highly negative mood you talk on these lines, in calmer moments you allocate. There may be companies who believe they must allocate because what they are throwing up as cash can?t all be invested. There are those companies that want to hedge; they don?t necessarily want everything in India and they see opportunity elsewhere. In the post-2004 period people went out to basically get technology. Now they are going to buy primarily resources and also infrastructure where possible.
Does that mean we will be short of capacity in India?
I have yet to see a single client who has not invested what he thinks is required for India?s appetite before he has gone out. The market which will give an entrepreneur, from anywhere, an opportunity to grow at 10% plus, is today India and tomorrow South Africa.
What about China?
China will slow down. If you look at the history of over 50 years, Japan grew for 30 years in double digits, then the Tiger economies, then Southeast Asia?before they hit a roadblock in 1997. China has now reported double-digit growth for 20 years. What happens then is you become wage uncompetitive and exchange rate uncompetitive. On both fronts, China has a longer lease because on the wage front they have a huge population like us and on the exchange front they have managed the currency well. But if they have made mistakes they will pay for it. For instance, if they let the real estate bubble overtake them, they will pay for it.
And where is India headed?
We started our journey 5-6 years back, like China, at rock bottom, at $500 per capita. My feeling is our pain point will happen at $5,000 per capita, when we are a $6 trillion economy. That?s when you will start becoming wage uncompetitive. That transformation gives a lot of scope for urban India far ahead and for rural India quite far ahead as they will move from $500 per capita to $2,000. So that?s the kind of progress I see over 15-20 years. With the kind of momentum that we have had, I can?t see a slowdown. It?s too big a mass to slow down. In 2003-04 we said we can?t grow because our savings rate was 24%; at a capital output ratio of 4, we could grow only at 6%. But the savings grew at 32%, we grew at 10%. Even now it?s probably at 36% or 38% but not too many people talk about it. So the ability to grow is there.
