New Delhi: More than 18 months after the Narendra Modi-led government came to power, the industry continues to be optimistic even though economic growth lags expectations, said Harshavardhan Neotia, the newly elected president of the Federation of Indian Chambers of Commerce and Industry or Ficci. In an interview, he spoke about the green shoots in the economy, capacity creation, an effective GST and the need for over-leveraged firms to look for investors. Edited excerpts:

Are things better now than two years ago?

Certainly. I think when this new government had come to power, Ficci had stated that all the new initiatives that are being taken, we will hopefully see the results in 18-24 months. I think we are in that zone presently. The good news is that we are able to see some of those green shoots of an improved economic performance. Now, to say that looking at the world, 7.2-7.3% of GDP growth is not a very bad number, but, from the aspirations that we set for ourselves between 8% and 9%, we are certainly behind. But, it appears that we will get there sooner.

Harshavardhan Neotia, 54Neotia is the chairman of Kolkata-based Ambuja Neotia Group that deals in real estate, hospitality, healthcare and education. In December, he was elected as the president of Ficci. He was awarded the Padma Shri in 1999 for his role in the development of social housing.

Are those green shoots fragile?

They are. But, why do I say that is because of three reasons: one is because public expenditure has to precede private inve-stments. I think it takes a while for the investments to actually go to the ground because there is a whole process of tendering and getting mobilization, etc. Of late, if we see, some figures such as bitumen offtake, it shows that the road sector has started moving very fast. I was told that three years ago, we were going at 7-8km per day; but now, we are doing 15km per day. This has to go up to 30km per day in the next two years. If that is so, that is a significant change. Some of the major initiatives taken in railways such as bullet trains, freight corridor expansion or setting up locomotive works, etc. There are many metro projects. I live in Kolkata and I see frenetic activities happening there in the metro corridors in the last 18 months. I assume that must be happening in many cities. If that is so, that will be very important investment that is being triggered. All of these have very high multipliers as they are very essential infrastructure. I also see ports are being strengthened and developed, which will integrate us with the world economy. I also feel that companies’ debt situation is moderating. It was very high and now it is on a lower trajectory. That means at some point, they will come to a point where they will start borrowing and investing. So, that’s another sign that I see. Most companies have built capacities looking at 8-9% growth and that did not happen for a few years. So, there was excess capacity in the system. Now, in the last four years, there has not been any new capital investment. So, I think that capacity is now getting up to a stage that it is getting used up. May be, in the next few years, we will see that there will be a need for fresh capacity expansion.

Yet, some big infrastructure firms continue to be hugely debt-laden. There remains a concern about the liquidity that these firms will generate as a lot of their projects are stuck for various reasons.

Liquidity is a problem. Many of them (infra projects) could be (stuck due to) permissions, clearances, environment issues or anything else. There could be other (factors) such as over-leveraging or not having the proper mix of debt and equity. So, it may require dilution or bringing in new investors. Fortunately, we are in a stage where there is investment appetite for Indian stocks internationally. The world is looking at India and it feels they can invest. There is enthusiasm with big investor groups. Of course, the big thing is that promoters here may get diluted but at least, their companies will benefit and survive, if they are able to bring in matching equity. Every company does not survive every situation and there could be some casualties and some of them could bounce back. We have seen both in history. No one necessarily always survives every crisis.

How important will be the state elections for the centre to take the growth path forward?

In the past, we have seen that when there have been multi-party governments, the reform process has continued. I see no reason why we will not be able to go ahead. Having said that, there will be some political hiccups. It has come in the past and it will come in the future. They will need to be navigated. But I don’t see the general direction of economic reform will get changed because of not having a full say in the Rajya Sabha. It may get slightly delayed. Some issues may need to get modified and there will be some negotiations on some of the clauses. But that would happen in a democracy. I think we will have to learn how to live with it.

Are you referring to the goods and services tax (GST)? Do you think we are missing the bus on that?

See, we have lived without GST all these years and we would certainly think that it is a game-changing economic, tax reform. It is a very important thing to unify the country as one market and to also plug a lot of leakages that happens because of a non-unified tax structure. So, we certainly are very much in support of it and we feel that it should come as soon as it can. Having said that, I think (the) finance minister very effectively argued the point that it is better to have a good GST than one which is not effective. If that means a few more months of negotiations to come to a consensus where all parties agree to, it is something that we all will have to live with. It would have been nicer if it could have happened earlier. But if it takes a few months, so be it. As of now, our internal assessment is (that) it will happen, but we cannot put an exact time frame to it.

What is your forecast for economic growth?

We are all aiming to move past the 8% number. Whether we will hit that number this year or not, I don’t know, but we certainly should. As to what sectors will drive growth, I think the services sector will still be the growth driver. We will still need it in terms of percentage growth. I think there, we already have certain momentum and built-in advantage. Having said that, we feel that there should be some uplift in agriculture production because we have had two poor monsoons and we will be third time unlucky if that happens again. But it seems like we are a little better prepared and we should not be so badly impacted. The Make in India programme should give a lift to manufacturing, but it takes a longer time because they are real assets to be built on the ground. It doesn’t happen so quickly. May be, we will see some activity starting this year, but may not be this year you will see those factories come up because it takes up to four years for large projects to come up.