KV Kamath, founding president of the New Development Bank (NDB), on July 6 stepped down from his position after a five-year tenure in Shanghai. The multilateral bank was set up by India along with Russia, Brazil, South Africa and China. Kamath, former chairman of Infosys and a business leader whose understanding of China is second to none, breaks his silence on several issues in an exclusive interview. Edited excerpts: Q. You were NDB’s first president. What would you count as your biggest achievements in the last five years?
I think making a simple statement that countries of the South can come together, stand on their own feet, and spell out their own destinies. That’s what NDB proved… you have a bank by and for the countries of the South.
Q. How many loans have you disbursed and for what?
We have lent to all five members. The loan book in terms of approval is around $18 billion whereas the disbursement book is around $4 billion. In a development bank, business happens with a lag, so it will ramp up in the next two years. The growth has been upwards of virtually 100 percent for each of the last three years. Capital has come in time and the loan book has also grown at a robust pace. Q. What are the big challenges for the bank given the India-China standoff?
The bank looks at the interest of the five members. That will continue the same way, as long as there is a development need in all member countries. The bank is now looking at inviting more members into its fold. This will drive the point made earlier that countries of the South can stand on their own feet and write their own destinies. This bank has a bright future in the space it operates in. Q. How do you see the last six years of the Narendra Modi rule in India?
In the economic context, if you look at 2014, we had a lot of pieces that we called stranded assets. So we come from there to where we are today… to repair those assets, put them into productive use and then drive the economy along. The economy was coming along at a fair speed and it synced with what was happening around the globe in terms of hiccups that the global economy felt. The process of opening up, engaging, diversifying and building scale was happening at a real pace. That gave the government the confidence to say that the aspiration is to be a $5 trillion economy in five years. Q. But the post-Covid forecasters, including the International Monetary Fund and Goldman Sachs, have been predicting a bleak outlook for the Indian economy…
I have a slightly contrarian view. In terms of Covid, not only in India, but in most of the world, it is difficult to predict what is happening. Having said that, we need to look at a different set of numbers that the government is using. These are readily available… what we would call high frequency data. If I look at that sum total, I get a different picture… at least in India things seem to be coming around or will come around much quicker than any of these agencies or institutions estimated. If I look at four to five components of our economy and the steps taken by the government, they have been beneficial and helped in the turnaround.
Agriculture has come back very quickly… rural India has been less affected by the health challenges and connections to the market have transformed dramatically. Today, a housewife is a direct consumer from the field and knows how to do an online transaction. We have a digital economy and the Jan Dhan accounts are in place; villages are also connected through a robust internet platform. So, I am more optimistic about farm employment.
If you look at the large industry and deep dive into any of the database, you’ll find that top Indian companies were never so deleveraged as today. They are by and large free of debt. So they will go through pain, but will come back quickly. I do not think they will have balance sheet distress.
The ecommerce industry has been the backbone in these troubled months and has provided extreme support to the economy.
Then comes the large mess of SMEs, and the pain and hurt that they have experienced. The government has offered or put in place the largest piece of the package for them. I am sure as it gets rolled out, these companies will find a market for their products and come out of that pain.
It leaves us with two or three areas which are experiencing pain—construction and real estate, particularly in urban areas. Also, infrastructure, because there may be constraints on how much you can spend… there could be a degree of pain there. Then, of course, financial services because that takes the brunt of all this pain. We’ll need to see how we can provide a helping hand to this sector.
But industry leaders are talking about their manufacturing activities coming back to 80 to 90 percent capacity utilisation… the supply and logistics chain are gaining speed.
Things are coming back to normal and indicators reveal that the rebound is faster than what most of us thought. For example, two-wheelers are back to 70 to 80 percent of what they were; tractors at 80 to 90 percent and mortgages other than in urban areas to 70 to 80 percent. This tells me that we will probably not have such a hard landing. Q. That’s an optimistic scenario, but would the fiscal deficit worry you at all this year?
I believe there is a new normal and in this new normal, we need to put on hold concepts such as deficits. We need to work for new numbers and have new ways of looking at things as long as you don’t do anything which will permanently tear the fabric of our economic growth. The government will have to experiment. I am sure it will also look at deficit in that context because to do all that, deficit will have to be played around with.
Q. Can we expect a V-shaped recovery of sorts?
Let me just preface that by saying that the job situation has improved in factories. On the recovery front, the initial thoughts were that this is going to be a ‘U’ with a long base and that would not have been good for the country. As of today, I think it will be a ‘U’, but with a very narrow base. Thereafter, you go to the other side of the ‘U’, probably the ‘U’ will not be a 90 degree ‘U’, but almost like ‘V’ accelerating faster. I would be delighted if it turns out to be a shallow ‘V’, but it looks like it will be a shallow ‘U’. There will be a little bit of pain and then we should be out of it.
Q. The government has announced a slew of reforms during the pandemic. How do you see this in the backdrop of a clarion call for Atmanirbhar Bharat?
Atmanirbhar is the call of the day. I believe today, the Indian entrepreneurs have a new spirit in them to battle this challenge that they have. This is executable for sure, but we need to examine the challenges. If you had to execute Atmanirbhar 10 to 15 years ago, you had a challenge because you did not have the scale. Now we need to look at the constituents or support that we would need to provide to corporate India and the entire system to make this work.
Can we revisit this whole platform of ease of doing business in a soft sense, not the hard sense… not the sense where you have to set up new capacities or learn how to do business, become competitive and so on, but the day-to-day operations and how you get them to be seamless? I am sure industry leaders will work with the government on this front and that will be a big step towards Atmanirbhar.
Q. A large part of Atmanirbhar Bharat is also about easing the credit flow to MSMEs. How do you think this will play out?
There are three components to this in terms of credit. Cost of credit, flow of credit and momentum of credit—making sure the velocity of money is maintained. All three have to be in sync. By lending a large package in terms of guarantee support, the government has done its bit. We now need to make sure the banks are able to lend this. And if this is government guaranteed money, can the banks provide it at an even more affordable rate? So low-cost credit, quick disbursement of credit and making sure that the chain of credit flow goes unimpaired and unhindered… that is what business and the banks will have to work towards.
Q. India has the third largest number of Covid cases in the world. How are industry leaders dealing with this?
They all want to get going with their businesses. We are coming to a situation where we should concentrate on recovery. As far as business is concerned, given the constraints, they are trying to see how they can operate without exacerbating the situation and yet keep the economic momentum going. The disease will be with us for quite some time. We will need to take care, but at the same time keep the momentum going. Q. The banking sector was struggling under the burden of bad loans even before Covid. Will the problem worsen?
The banking sector was having a problem, but it was coming out of it with the government’s efforts and the capital that was injected. It needed a little more hand-holding. Yes, there will be challenges. Growth is going to be a critical part for the banks to come out of this. With the steps that have been taken, growth will happen, whether it is in corporate India, rural India or retail India… we need to maintain that momentum of growth.
Lower interest rates are going to be critical for the survival of banks. Yes, capital injection will be required, but the order of capital injection will be significantly lower than what it is if you run it in a high interest rate regime. Interest rates have started dropping… I would guess that they need to drop even further if banks have to come around without too much pain.
The moratorium announced by the Reserve Bank of India and its extension were well done. If there are sectors that genuinely have a problem, the policymakers could consider a moratorium of longer nature, maybe a one-time moratorium. Q. Are we in a position to decouple from China?
The industry is probably in the best place to answer that. If I look at the imbalance in trade, it probably cannot be immediate because you’ve got to be careful and see who it hurts more in the immediate sense. Q. Do you see India as an alternative manufacturing location to China for global companies?
India is a global manufacturing base. Some of the things that I said earlier… particularly getting soft issues and the ability to do business with ease are key to the success on this front. If you get that right, our industry can be a world beater. Q. Some people say this stress on Atmanirbhar is the code speak for reducing our dependence on China. We have banned 59 Chinese apps, imports from China are under close scrutiny...
I would look at the indigenisation process as separate from the Atmanirbhar process. What we are talking about is a narrower indigenisation process, which has to happen and with all our partners… wherever we are getting stuff from. We will need to see—should we not be, in a competitive and quality conscious way, making this ourselves. Every Indian company needs to look at this and that could be done in partnership with whoever can provide you the knowledge, if necessary.
I think Atmanirbhar is a much bigger concept. It is the ability to stand on your own feet, look after yourself. So I would disconnect these two. There is an opportunity to indigenise, let’s do that. There is a bigger opportunity at being Atmanirbhar, let’s do that.Q. Any possibility of taking up a big assignment with the Indian government?
Absolutely not. Twice earlier, I have said I need time. I am getting older and I need time to be with family, grandkids… every time I say this and a few years pass and they get bigger and I get older.
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