Mumbai: India’s gross domestic product (GDP) can grow at 8% if the economy can build capacity to meet growing domestic and foreign demand and ensure investor interest, said Uday Kotak, vice-chairman and managing director of Kotak Mahindra Bank Ltd. Kotak has just returned from the World Economic Forum held in Davos, Switzerland. In an interview, he spoke about his expectations for capital flows into India and why he sees inflation dipping in coming weeks. Edited excerpts:
How do you compare the mood of investors at Davos and in India?
We are living in two different worlds: the world at Davos and what we are seeing in our country. The mood at Davos, particularly, was very sombre in the context of the Western world, where unemployment is a big challenge; there are issues about surplus capacity, sluggish growth... You are seeing surplus capacity even build up in China...
Vantage point: Kotak Mahindra Bank’s Uday Kotak says global oversupply and unemployment is a positive for India. Girish Srivastava / HT
I hear, for example, the steel capacity in China is about 700 million tonnes (mt), with demand being at around 500 mt. That’s 200 mt of surplus steel capacity in China. This surplus capacity is around three times India’s total capacity. And then, if you look at that in the context of Europe, total steel capacity is not 200 mt. So with this kind of a global excess supply situation, you have a unique world in India where the constraints are on the supply side and demand is running ahead of supply.
India’s answer really is to get our supply side going. And unlike the rest of the world, India really needs to ensure that the investment demand continues...
My view is that India is in a reasonably positive situation. My sense is growth will be around 8%.
There is tremendous global oversupply and unemployment, which works out positively from an Indian point of view.
We recently saw a hike in the cash reserve ratio. If inflation continues to rise, do you foresee further rate action coming in by April?
No. Our view, first of all on inflation, is that it will continue to go up till end of March or early April, after which it will taper off as the base effect takes place. We will go back to a level of 6% average inflation, which is better than 8-8.5% which we may see in March...
You have to address the supply side, whether it is food supply or the infrastructure investments or others... By focusing only on policy instruments, we may actually hinder the whole supply side, where investment needs to continue.
How do you view capital flows into India shaping up?
We should see...$12-15 billion (Rs55,560-69,450 crore) net inflows into India. Look at last year’s numbers. In the nine months from April to December, we saw positive portfolio flows of $24 billion, and it was minus 7 (billion dollars) in the first quarter. So if you take the last nine months, we had approximately an average inflow of $8 billion a quarter. Even if, in this calendar year, we receive half of that, which is $4 billion a quarter, we’re talking about $16 billion...
And, they may be skewed. You may see more in one quarter, less in another. But overall, through the year, if you see globally, easy money policy, low interest rates, and investors looking for growth and returns...I would believe that we will see money coming into Indian markets at the right valuation.