MUMBAI: The ascension of Narendra Modito power has already resulted in an uplifting of the entrepreneurial spirits, which, coupled with decisive decision-making, should translate into faster growth, ICICI BankBSE 0.75 % Chairman KV Kamath has said.
In an exclusive interview with ET, his first detailed media interaction since the dramatic victory of the Modi-led BJP in general elections last month, Kamath also called for interest rates coming down by as much as a quarter over an 18-month period. “The first thing that needs to be looked at is getting the investment mood in the country right. Get the mood of the people right and create a momentum.
It is already on (the) way. I have started to speak with entrepreneurs and I haven’t seen such a mood change in the past four years. I saw a mood swing in 2009 after the 2008 challenge (global financial crisis) we had. This is a much bigger mood swing,” the veteran banker said on Tuesday.
‘No easing fiscal deficit targets’
Over time, interest rates would have to head lower for growth to pick up, Kamath said while conceding that RBI will not be able to act till inflation came down.
“Interest rates would be critical to outcomes. Having said that (it) doesn’t mean if we have this persistent inflationary challenge we can move very quickly. To give the sort of push (required to lift) growth to double digits, interest rates would have to be cut by a quarter at least,” Kamath said. The benchmark repo rate is currently 8%, so a decline of a quarter would mean rates coming down to 6%. The decline in interest rates could take place over an 18-month period if the government managed to get a grip on inflation.
“It (bringing interest rates down) will take 12-18 months subject to other things,” said Kamath. RBI Governor Raghuram Rajan kept the repo rate unchanged at 8% on Tuesday, but the tone of the accompanying statement was dovish, indicating that rates could go down in future.
Kamath, who is also the chairman of software icon InfosysBSE -0.72 % and is currently heading a search committee tasked with finding its next CEO, opposed suggestions that India could consider relaxing its fiscal deficit targets.
“For a long time, going back to the 2000s, I was a strong advocate of larger deficits saying that you can live with larger deficit. That was based on the premise that deficit was going to finance productive expenditure. Currently, fiscal deficit is arising from consumption expenditure. That in itself is inflationary,” said Kamath.
Complimenting Prime Minister Narendra Modi for doing away with panels such as empowered groups of ministers (EGoMs), Kamath said he hoped Modi would follow the Gujarat model of decisionmaking in which civil servants and ministers are given clear goals and are asked to come up with solutions. Further, the resounding electoral mandate for the BJP-led alliance would itself speed up matters.
“(When) you have majority in Parliament, decisions are taken in a representative manner. We have yet not understood the power of a democratic decision-making process. We have only seen the hindrance aspect (so far).”
Commenting on the government’s economic priorities, Kamath pointed out that getting stalled infrastructure projects started held the key to regeneration. “The investment cycle will get going with infrastructure. Manufacturing will follow. Largest demand for credit and investment happens in infrastructure.” “What I find interesting is this government has added two or three new things which would add momentum to the old slate of things.
The old slate was roads, power, drip irrigation, ports, telecommunications — typical first-stage infrastructure. Now, we hear urban rejuvenation coming in, we hear toilets for everyone in the next five-year period, housing for everyone by 2020, water utilisation — this would be continuation of linking the waters. These are four to five new drivers.”