EDITED EXCERPTS FROM AN INTERVIEW
What’s your take on the economic slowdown?
When we look for signs, it’s clear there is a slowdown. There is a complete standstill in infrastructure investments. Look at the numbers from automobile sales, real estate, retail, hospitality, etc, — they are all slowing down. So, even in sectors that offered stability, like services, there’s been a trend reversal. A large part of what provides momentum to growth is under stress. The only place where I see growth is rural India.
Post Budget, there is hope that infrastructure will help us put the growth blocks back. Is Finance Minister P Chidambaram being overambitious in his assumption that most of the $1 trillion for infrastructure would come from the private sector?
The government has articulated on what needs to be done. That’s a good start. The problems — and the government knows this — are the impediments in executing these trillion dollar projects. Acquiring land, resolving environment issues and allocating and pricing natural resources are significant issues. Till these are resolved, my worry is that not much of the trillion dollars will get spent.
Is infra revival going to happen soon? The private sector is wary since many lost money or have investments stuck.
Let’s break it into two parts. In the case of projects that have run into small roadblocks, they are not being put to productive use, because one of the three constraints (land, environment and resources) is still unresolved. Take for instance, a case where natural resources are not being properly allocated due to pricing. If this issue is resolved then a large part of the amounts stuck in, say the power sector, would be relieved and get addressed. It would allow promoters to reinvest and proceed. The productive use of such projects is critical because they contribute to economic growth. I am not as pessimistic as I was six months ago. There is positive feedback on the work done by the government.
Another area is fresh investments that are stuck. That is equally critical as it provides the momentum required to kickstart the next level of growth. Without new investment, growth will not move from 5.5 percent to 7 or even 6.5 percent. For that to happen, the three preconditions of environment, land buying and resource allocation must be met.
We are discussing infrastructure at a time when POSCO has again made headlines. The government is often considered to toe a populist line but industry is the other extreme, wanting a free hand in this. Is there no sensible middle ground?
I have a detached view on what makes a good middle ground. There are obvious governance issues, which have been pointed out by the judiciary as well as within the government. Once they are addressed, everyone will adjust. There has to be clarity, certainty and time-bound redressal. That’s not asking for much.
How can industry bring back lost trust?
The government needs to make the first move by putting out clear rules and transparent procedures for the industry to follow. That first step has to be taken.
Has the industry rushed in too soon in such contentious projects?
I don’t want to blame the industry. It has been doing what it’s been doing for 40 years. Entrepreneurs exploit conditions and situations where things are not clear. Anyone who can deal with an uncertain situation has an edge. That’s what industry does successfully around the world. They have just been caught doing it now, and have to work their way out of it. I am sure industry was aware of the challenges.
Crony capitalism is now discussed openly and unabashedly. What does this say about the industry-politics relationship?
People have been doing business in this country for a long time. The entrepreneurial spirit hasn’t been thwarted as it has been in other countries. At times, there may be a lack of clarity. Clearly, some people will take advantage of that grey area. But beyond that, the issues we are talking about are common to all growing economies and the government needs to find ways to tackle them. If you look at some parts of India, the same constraints that exist in the rest of the country don’t seem to be stalling progress there. We need to see what is different in these parts and then put it in context.
The international investor is taking notice of this dichotomy. Is it ideal for a nation that investors see some states outperforming others?
Once you address the key issues holding up some of our sectors, we will find that we are sending out the right signal. To me, the signals around infrastructure are critical. Nothing’s wrong with our manufacturing model; it can only improve. Infrastructure is where a big change is needed. The rest will follow.
Why do you say manufacturing isn’t hit significantly?
The medium and large companies are appropriately leveraged in manufacturing. These firms are also sitting on free cash flows. They have the ability to push projects at great speed. Today, they are seeing a slowdown but the minute they see some market revival, they will invest and bring production levels up.
But, in a sector like automobile, we are down from 14 percent to negative growth.
The slowdown in demand could be due to affordability, joblessness, or high interest rates. Infrastructure is key for the economy to go forward. It might also be wise to look at what’s impeding consumption. Interest rates are one thing. We also need to look at inflation.
Manufacturing has been a big employer. Any slowdown is also a reflection of what happens to jobs. How do you fix that?
Let’ go back to 2001-04. Growth was primarily because of the knowledge and services sector. Consumers had money to spend, interest rates were low and that started a consumption cycle, which fed into an investment cycle. We need to get back to that. Another thing that happened in 2004-2009 was the infrastructure boom.
Why is India’s growth considered a jobless growth?
Enormous productivity increases have happened across the world. Twenty years ago, we may not have been as productive as the West, but today productivity catch-ups happen very quickly. What could have happened is that consumption led to growth, which we are able to meet with lesser and lesser human input. Then we need to look at mass expectations. The hope is to have better infrastructure and better services. Until the China story, manufacturing created jobs. In our case, manufacturing may still remain an important anchor, but not necessarily the job driver.
Are we just a market? What happens to all those MBAs we are churning out?
There is a lot of growth happening in knowledge areas. We need to look at these areas to become the key momentum providers. In the context of our booming economy we need to look at the skill gaps and plug them. That’s what the National Skills Development Corporation is trying to do. However, there is no question that there is a skill gap.