The opening-up of the economy will depend on the progress of vaccination, peak capacity of supplies, and the ability to make Indians understand that precaution is essential, the outgoing president of the CII, Uday Kotak, said
The Indian economy is at a crucial juncture where the government has to decide when to open up. Covid-19 positive cases have come down, but the question remains whether we have vaccinated enough people and how prepared we are for a third wave, if there is one. The opening-up of the economy will depend on the progress of vaccination, peak capacity of supplies, and the ability to make Indians understand that precaution is essential, the outgoing president of the Confederation of Indian Industry (CII), Uday Kotak, said in an interview with Mint. July-September will be the most challenging period for India, he said. Edited excerpts:
Do you think the economy will be resilient at this pace of vaccination?
By the end of FY22, we should get back to an economy of the size that was there at the end of FY20. If we were an economy of size 100 and if we see an 8% contraction, we will get back to 100-mark, which is 8-9% growth, by next year.
Do you think the Centre should announce fiscal measures so that monetary policy does not have to do all the heavy lifting?
The time has come for the fisc to support the economy in two parts. In the lower strata, where it has to be in the form of direct intervention, whether food or other essentials or cash in the bank, and the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA). The second one is a programme to support stressed sectors in business. It could be an extension of the ₹3-trillion ECLGS programme, which has been quite successful, though not all of it has been used. But I would expand the sectors, even the size, and maybe suggest going up to ₹5 trillion.
What are your thoughts on India’s vaccination policy?
We need a two-segment policy and not a three-segment policy. We should have 75% allocated to the central government and price can be negotiated and thereafter the vaccines can be equitably allocated to the states. The remaining 25% should be left free for the private sector. This three-way thing of 50% supply to the central government and then the remaining 50% between the states and the private sector is complicating matters.
Could we have planned the vaccination programme better by anticipating the second wave?
You are driving the car. So look at the windshield and not at the rear-view mirror. Let us see how we can make it from here and from what I hear, we should have 15 crore vaccines by August. So, let us get our vaccination pumped and ensure that the government pays a fair price and maximizes production and distribution. That is how we should think of our future. There is a very delicate balance between July, August and September. The vaccinations are still going up and your positivity rate is coming down.
Do you think the RBI should allow another moratorium or extend restructuring for large corporates?
There is nothing stopping a bank from restructuring or giving any facility to borrowers. All that the bank needs to do it is ensure it has enough capital and set aside provisioning charge for restructuring or moratorium. Continue with financial discipline and take capital charge and provide. Private sector banking has been increasing its capital base over the last 12 months. If banks have enough capital and do what is right for borrowers, let’s not mix it up with the third part, which is if I give forbearance to borrowers why do I need forbearance from RBI for the capital charge I need to?
Do smaller banks require some more covid forbearance?
Most banks have raised capital and it is not just the large banks. Any bank that needs capital will see that it is available. You know that Yes Bank raised another ₹15,000 crore last year from the markets. Besides us, ICICI Bank, Axis Bank, IDFC First Bank, RBL Bank, and AU Small Finance Bank also raised capital. The answer is to get oxygen and it is available for the financial sector. Non-bank lenders have raised capital as well. One of the biggest things that covid-19 has surprised us with is the ability of the markets to provide equity capital. We should avoid a situation where we extend and pretend. If you are extending, take the provisioning, take the capital charge but let us not pretend that there is no problem.
CII suggested some changes in RBI’s diktat on auditor appointments. What are the challenges in implementing it?
First, India needs to have an Indian auditing and accounting capability. Therefore, strengthening India’s capability is important. However, what we need to do is that whenever we have a change in policy, there should be enough time for transition. One of the suggestions we have made at CII is to give fair transition time for this change. Whether it is a global or a local audit firm, I think both have had their challenges in the financial sector and what is clear and critical is to increase capability across auditing firms. More importantly, there should be a value system that is consistent, irrespective of whether it is global or a domestic firm.
How will the capital market activity be this year?
This year, capital market activity will continue but a lot will depend on how the US behaves and how India works on vaccine and the covid situation. Therefore, I would like to believe that activity would pick up as we go forward, subject to global inflation and interest rates.
What are your expectations from RBI’s policy next month?
We need to keep the policy accommodative at least through calendar year 2021. This is a time when monetary policy has to support while fiscal steps up, but you cannot have a situation where the interest rates go up in the short-run both on the short as well as the longer end.
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