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Economic, labour reforms can take India to 10% growth mark: Kiran Mazumdar Shaw

The PNB episode is a one-off and there should be a distincti..

The PNB episode is a one-off and there should be a distinction between vigilance and over-regulation to avert such mess in future. Kiran Mazumdar Shaw, MD, Biocon; Keki Mistry, CEO, HDFC, and Ashishkumar Chauhan, CEO & MD, BSE, said that and much more during an interview with ET Now. Edited excerpts:

ET Now: Keki, I want you to touch upon what Kiran spoke earlier. Various sections of the industry are worried about the collateral damage of the PNB fraud. How worried are you about credit flow drying up and that in turn impacting economic growth?
Keki Mistry:
Well, my sense is what happened in PNB is a one-off. Frauds do happen in the system, you cannot prevent these frauds. You just have to have a little stronger vigilance mechanism which ensures these frauds can be detected quickly now.

Having said that, there is a certain amount of nervousness we have from public sector banks, but I would really like to impress upon banks and the RBI that India needs growth. Credit growth is happening and capex cycle is beginning to grow and for that, we need a strong and a willing banking system.

So, we should not have a banking system which is nervous of lending money because at the end of the day, for every loan you give, there is always that small element of risk you take… that is something you have take in your stride. PNB is a one-off event. I do not think that should leave bankers unduly worried.

ET Now: Kiran, do you sense a little bit of nervousness among PSU bankers? Credit flows dropped to a multi-decade low two years ago and was just showing some signs of a pick-up. The fear psychosis could kill risk appetite among entrepreneurs. Is that a concern?
Kiran Mazumdar Shaw:
Well, like Keki just said, it will have an immediate sort of backlash, but I hope it will recover very fast and the government has to be very, very forceful in terms of articulating the fact that this is a one-off. We need to see the credit flow if we have to support the kind of growth we want.

I hope the banks do not get into a shell because that is what I worry about. In our country, the pendulum swings from one extreme to another and certainly, it will have a backlash for sometime, but I hope it is short-lived.

Second, I also believe that the country tends to go from very poor regulation to over-regulation. I think we must find a balance in terms of regulating various sectors because that also throttles growth. That is what I think the government needs to focus on.

How do we make sure the credit flow moves up again and there is a good balanced regulation to ensure none of these scams happen in future? You need to have much vigilance, but I think there is a big difference between vigilance and regulation. Very often, regulation is not followed and that is why you get into these kinds of situations.

You do not need to over-regulate, you just need to make sure regulation is followed. That is the mistake we are making in our economy. We start moving from under-regulation to over- regulation whereas what we need to really make sure is the regulations are followed in a balanced way.

ET Now: Ashish, are you also hopeful that the government will use this crisis as a sort of opportunity to reform the banking space structurally and bring down its ownership in state-owned banks, if not privatise them. Prime Minister’s stated objective is minimum government and maximum governance. We have seen some cases with Air India privatisation. Is this an opportunity for the government to reform the public sector banking space?
Ashish Chauhan:
Certainly, I think no crisis should be visited in terms of creating policy reforms. Even last two years before the PNB thing came out, the banks were not in a position to lend. Private sector banks came up and NBFCs have done. Even the borrowing from the market itself has become so large that it is actually now overshadowing the banking system.
Sometimes, we are used to looking at only one side and saying they are the only saviour… two years back when the banking system sort of reduced the funding, the BSE alone again raised $35 billion in one single year 2016-2017 and nobody observed, nobody noticed because we are not used to seeing markets raise debt for large and small corporates.
Somewhere down the line, these channels are now many and move very fast. People also move the funds very fast and so I am not too worried about overdependence of India on PSU banks alone that could have been the case 15 years back. But probably now, I am sure everyone would agree that we have much robust, much larger banking system in the private sector as well as NBFCs and markets.

ET Now: Keki, the other concern is a possibility of a trade war and I am talking about the global climate right now, given the fact that the US has moved to raise metal tariffs. How much of a concern is that for a country like India because exports again have just started picking up? Do you believe that India does not have much to worry about because we do have a robust domestic market to cater to?
Keki Mistry:
I would believe we have an extremely strong and extremely robust domestic market. Our growth is largely dependent on the domestic market and less so on exports. We are not like China, we get less affected by what happens internationally. I would be fairly sanguine in saying the growth path in India should remain strong because the domestic economy is strong.

ET Now: Kiran, I have to ask you this question since you are sort of straight talker. How big is political risk to India in the medium term? The possibility of regional parties coming together and a non-national party being at the Centre is not something markets price in. Do you believe that fundamentally India story is so strong that it does not really matter? I mean after all we had the so called dream budget when the United Front Government was in power in 1997.
Kiran Mazumdar Shaw:
I personally believe the political risk is minimal. I think we have a very stable economy, but having said that I would like to see very important growth drivers addressed. This government had promised a lower corporate tax rate. Those kinds of measures are extremely important to sort of boost economic growth because I do believe that corporate India needs to remain competitive globally.

Keki might say that domestic market is very important but I do believe that exports are also going to be extremely important for India to remain globally competitive. For that, I certainly believe that we cannot afford to have very high corporate tax rates. So, I really would like to see corporate tax rates coming down, but in terms of political risk I see that very minimal in terms of India.

ET Now: How much time before we hit that 10% mark? It has been elusive and I am not talking about hitting in one quarter and coming back, but on a sort of sustainable basis. How many more years before we get to that 10% growth rate mark, according to you?
Ashish Chauhan:
Probably at least 2-3 years minimum because we have just kickstarted or rebooted our economy. Considering the effect of the newer technologies, I think probably on 3-5 years scale, you might be able to reach 10% somewhere.

India itself is growing so much. When I look back probably China was in our demographic situation say in 1998-99. So, we are like 20 years behind and their takeoff happened post that. Our demographics is in right place, our consumption story is right despite all the global issues you mentioned. As Mistry said, it is about the consumption local story.

ET Now: Kiran, how much time before we hit the 10% mark and the most important thing that needs to be done is it factor market reforms, land and labour reforms what is the one most important thing that needs to be done for us to get there to the 10% mark?
Kiran Mazumdar Shaw:
Well, I personally think it is going to take us at least five years to hit the 10% growth mark, but I think there is no single factor that is responsible. We still need to continue to push economic reforms, labour reforms and I do agree that new technologies are going to offer us a huge opportunity globally because I think this whole digital economy that is revolutionising the world gives India a huge scope to be a part of that digital economy.

From that point of view, yes, it is a very very big opportunity to grow our economy in a very non-linear way. But having said that, I think we still need to push reforms, policies and unless we do that again, we will find that we are not playing to potential.

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