Make Indian industry more competitive

Kotak Mutual Fund CEO Sandesh Kirkire says there's need to enable environment for genuine entrepreneurship
     Print Edition: May 2013

Kotak Mutual Fund CEO Sandesh Kirkire
The first quarter of 2013 is past us. During the period, the key benchmark indices, Sensex and Nifty, declined 3.04% and 3.77%, respectively, with the decline in the mid-cap space more pronounced than in the large-cap space.

This can be attributed to political uncertainty, further moderation in growth and profit-booking at higher levels.

However, FII confidence continues to remain high. FII inflows in the last three months have been $10.3 billion, with nearly $1.65billion inflows in March alone.

The moderation in the investment and consumption cycle is more than evident now. The core industrial output fell 2.48% in February, which is one of the worst in a decade. Hopefully a one-off number, yet, if it is a harbinger of an onsetting trend, then it implies that recovery may be further delayed.

The financial and non-financial barriers to entering, conducting and exiting businesses seem to have become worse over time. This has increased the time preference of money for Indian firms and households alike.

The firms are increasingly deferring their capital expenditures or transferring their savings to overseas ventures.

Households also seem to be withdrawing from investing in productive assets and preferring assets such as gold. Regulations may only go so far but no further in tackling this situation.

What is needed is an enabling environment for genuine entrepreneurship. This will allow savings to become more productive. But for that, the ease of doing business, reduced capital costs and a more convenient access to the market is necessary. In its absence, the scale and opportunity of the Indian middle class is only a potential, rather than a resource.

The wide current account deficit and inflows on the capital account partially reflect this phenomenon of rising risk premium.

India imported nearly $58 billion worth of gold in 2011-12. The figure for 2012-13 is expected to be $38 billion. This is nearly 60% of our expected current account deficit for 2012-13. Likewise, in the April-December 2012 period, India saw FDI and FII inflow of $30 billion.

From this, a view can be made that perhaps India is exporting a large portion of its domestic savings for non-productive assets like gold, and in return, has to import capital. This dichotomy needs to be addressed.

While the declining gold and crude oil prices may alleviate the import pressure, a longer term solution has to be built around increasing the competitiveness of industry.

CEO, Kotak Mutual Fund

(This is a sponsored article)

  • Print

A    A   A