Apex industry chamber Confederation of Indian Industry (CII) seems to be endorsing the government's view that the beneficiaries of the COVID-19 stimulus have to be the most deserving ones. In an exclusive interview with BusinessToday.In, CII's new president Uday Kotak said a fine balance between the fiscal deficit and financial health of the Indian economy is the need of the hour. He supports government aid to the vulnerable individuals as well as businesses, but does not seek support to keep inefficient businesses afloat.
BT: Are you by and large agreeing with the fiscal prudence the government is exercising?
Uday Kotak: Whether it is fiscal prudence or not, the government has already spent Rs 10 lakh crore. We may need to spend more. But when we do that it should be consistent with our plan to bring medium term growth back. We must get our priorities right, which is why at CII we have come out with a 10 point (agenda for medium term growth). It says that whatever we need to do now to protect loss of lives and livelihood, we must do it. If there has to be cash transfer, if there needs to be food for the poor, we need to do that right away whatever be the fiscal deficit. The second being India is woefully underinvested in healthcare and education. We (healthcare spend) are at 1.3 percent of GDP. Germany has saved itself because of its investments in healthcare. We must right now give all the stimulus to invest in healthcare. The second point in that context is we have neglected mother nature. We have to invest in harmonising nature with us. We must start spending now.
The painful recovery over a nine month period or a year will create a loss of a lot of livelihood and lives, that's where the concern is...
There is no negotiability in mitigating the immediate pain. If that results in an additional fiscal deficit of 1 to 1.5 per cent, I will live with it. But this attempt to say you have to keep all companies alive, I don't think we have the money for it. I am trying to make a distinction here. We have to be very clear where to use the money. There will be interest groups. We have to be careful about very clear prioritisation for the bottom of the pyramid, for the poor people, for people who run the risks of having no jobs and no income. You must go out of the way (to help).
How much more can the government spend while maintaining the fiscal deficit - financial stability balance?
The government will have to spend more. You have to spend smartly. You should be able to demonstrate that this spend will lead to medium term growth. And you have to think like investors are thinking today in the capital market. Investors are saying we are writing off company performance of 2021. We are looking at 2022 and 2023. In the same way, global and Indian investors are looking at India's numbers. They say 2021 is a tough year, we are not giving a GDP estimate for 2021, we need to look at 2022 and 2023. We need to give a convincing story that the additional spend we are going to do this year, which may be a loss year, or a negative GDP year, is for the sustainability of our growth in the future. The rating agencies are also saying they are worried about the trend growth. So let us focus on getting trend growth back and making investments for that trend growth. Like investors in the stock market, the investors on the stock called 'India' are also looking at that trend growth.
So you prefer a medium to long term strategy and re-drawing our priorities?
No, we need to save lives and livelihoods, if you need to spend to keep people in jobs, I will be open to it. But for inefficient businesses, and businesses which have a structural change because of a change in the world, the consumer will decide, not the government, about the future of that business. So if a consumer decides I want to buy online and I don't want to go to a mall, that is a choice which the government should not intervene.
Every other economy seems to be more clear about the stimulus measures they have for their industries?
I am a firm believer that there is more (stimulus) coming. But you must be clear that if you lose all your bullets, you will have nothing left for the medium term. There has to be a trade off between here and now, and what should here and now be used vs what should be for medium term.
By when do you see India moving back to 6 to 8 per cent growth?
What we should focus on is how every month gets better. Let's assume the starting point is February, by next February or March can we get close to that? And what is the line we are going to do month after month? And focus gradually on things like electricity consumption, wage, fast tag, PMI...data which tell you how you are proceeding granularly month after month. That will give us an ability to assess what will be the growth we can move towards in the years ahead. We also need to be careful because today parts might look better because of pent-up demand. But it may not be sustainable demand. So we will have to do a very careful analysis of data (to arrive at the growth estimates). We need to very closely follow this data and take corrective steps, and then predict what it will be in 2021. At the same time, invest for medium term growth to see how it will look in 2022 or 2023. To use the Cricketing terminology, play each ball on the merit. The pitch is difficult .
How much more do you think the government can spend and where will the money come from, if printing is not an option?
Printing is happening. The way printing is happening is the Centre is not placing directly with RBI, but RBI is buying in the secondary market, which is expanding RBI's balance sheet, which is indirectly monetisation. That is already happening.
What are the investment friendly policies the industry is expecting from the government?
If there is one thing I would like to see it is getting rid of unnecessary bureaucracy. Cleaning up approval processes. Making it clear that anybody taking an investment decision is taking risk, so reward risk takers. Anybody who is putting his or her capital to risk at a time when we are not seeing private investment grow in India for many years, it's a symbol of faith that person is having with India, whether it is Indian or overseas (investor). Support them.
How do you see Prime Minister's Atma Nirbhar Bharat call? How can we be self reliant and be an India which is exporting to the world at the same time?
As part of CII, I fully support self reliant India, but a competitive India, not an India which is unnecessarily protective. If somebody is dumping here because there is no fair market pricing, you should protect against that. That's my view, and that is CII's view. A self reliant India which believes in competitiveness and engages with the world. We have to be very careful not to combine self reliance and protectionism. I am fully on board to be self reliant and competitive. When we compete, we will be self reliant, when we cannot compete, we will not be self reliant. For me the word self-reliant has a broader meaning. To have a world class healthcare system, to have a world class education system for all Indians, that is self reliance.
How much more needs to be pumped into the economy at this point in time?
We have to find very creative and appropriate ways of making those investments. One example where the government has done a good job is MSME corporate banking. It works. The Rs 3 lakh crore guarantee given by the government to banks and NBFCs to lend to MSMEs for additional money is going to create direct money in the hands of MSMEs for reviving their businesses and the state is taking the guarantee for this. The important point is Rs 3 lakh crore is being spent, which is 1.5 per cent of GDP, but actual loss will not be Rs 3 lakh crore, it will be less. Also it will not hit in the current year, but over four years. That is a fiscal deficit over four years, but towards a productive goal. This is good financial planning, and investing in what will ultimately create value.