India needs to maintain financial and fiscal stability even as fiscal deficit inevitably expands in the future, amid a shortfall in revenue and the need for more public spending, newly appointed President of the Confederation of Indian Industry (CII) Uday Kotak said on Thursday.
"While ratings are a matter of opinion, what is contained in the ratings is something we need to keep in mind, so that we don't have a sharp increase in cost of borrowing by Indians or Indian companies from the overseas markets, as also a sharp withdrawal of money should there be a significant drop in financial stability parameters," the banker said. However, he added the government would need to boldly spend, taking care to balance funds needed to soothing the economic wounds of individuals, businesses and the financial sector.
Kotak, the Executive Vice Chairman and Managing Director of Kotak Mahindra Bank, took over as CII President on Wednesday from Vikram Kirloskar. In a departure from established practice, the CII President did not release GDP growth estimates for the current year at his inaugural press conference, arguing that the impact of the pandemic is still being understood. "It is fair to reasonably presume that in the current year, considering we had a long lockdown, the estimates on the negative side may have veracity. There may be some negative growth for the year," Kotak said.
Instead, the focus should now be on tracking more granular progress on a monthly level, as segments of the economy deal with the crisis and recover, he said. Kotak also argued for adopting a broad view of the economy, many parts of which may not be able to recover to earlier levels according to global estimates. Instead, there will be other areas, particularly in the digital and tech-oriented sectors, which will see a resurgence in activity and jobs, he added.
Immediate Challenges
On the issue of banks coming under pressure due to interests being waived during the loan moratorium, Kotak said banks have an obligation to serve depositors both on principals and interests, when borrowers get moratorium. "The people who are asking for moratoriums on interest, please keep in mind that you also happen to be depositors somewhere," Kotak pointed out.
The ongoing Coronavirus crisis has coloured CII's overall objectives for the year, Kotak said. The chamber has sought to push for protection of lives and livelihood, increasing of public spending on health and education and environmental sustainability in FY21 above and beyond economic interests.
Kotak stressed that the Prime Minister's call for self reliance is a necessity, but this would need to be based on the quality and competitiveness of India's products and not protectionism. By extension, Kotak said that India should be open to trade with China - a major global power - yet remain strong on issues like dumping of excess of excess Chinese capacity.
Kotak said the guarantee scheme for MSMEs announced by the government is a good model inject liquidity into the economy without compromising with the fiscal deficit in the short run "The scheme would not hit the current year's fiscal Also, 100 per cent of the guarantee is unlikely to be a loss, with the final loss being only a percentage of the total sum," Kotak said.
"We expect that by Q4, things will start getting back to normal if the pandemic doesn't get much worse and if there are no further lockdowns. By next year, India will get back into the growth charts even if it is not at a pre-covid era pace," said T V Narendran, CEO & Managing Director of Tata Steel, and now CII's President Designate.
Going forward
An upbeat Kotak invited corporate India to raise capital and fortify itself on managing risk given that the stock market has recovered substantially from the lows it fell to in late March at the onset of the pandemic. However, he added that a rising market may not be a sufficient indicator of assured economic growth in the months ahead and India would need to put in hard work to address the challenges.
Kotak also warned that given the accelerated pace of change in the global economy, many jobs will not remain like earlier and India will need to be ready to provide critical skilling to citizens for jobs of the future. Many of these jobs need to emerge in the rural hinterland. "For the first time in our lifetimes, there has been reverse migration from the cities. People had chosen to move to despite their being significant infrastructural changes simply for the reason that there was a chance to earn more," he said.
As a result, both state governments and the Centre need to provide more social security to citizens at a time when the nature of jobs are changing, he added.