Need a sense of urgency to fix economy to deliver growth: Ravneet Gill, Deutsche Bank
The Indian economy probably faces its worst crisis in more than two decades and many are throwing in the towel. The world has changed and investors are also changing.
In an interview with ET, he says building consensus is foremost. Edited excerpts:
Economic growth rate is being cut. The Rupee is in a free fall. What has happened to the great India story?
Multiple things are happening, one is the global situation, second is that we have a regulatory environment that’s a lot tougher now and, third, it is the tapering of economic growth. The situation isn’t as helpless as it’s sometimes made out to be.
We still have a public sector which is cash rich and the government can ensure that the money gets spent. What could potentially happen in this cycle is that the public sector leads the revival and the private sector comes back when a bit of momentum gets built up.
Why should public sector spend when the animal-spirited private entrepreneurs are holding on?
At the global stage today, various governments are taking on a bigger role in the business than they had till three-four years ago. The current sentiment is preventing the private sector from spending, but the government could take the lead. It is their capital at risk and they can put it to work.
Hopefully, that will generate employment and production, leading to demand in cement and steel and so on to have a gravitational effect on the economy and bring back the private sector. A little sense of urgency in starting that spend would help.
But nothing seems to be moving?
I have a different view on that. I feel that from now and leading up to the elections, you will see a lot of action in terms of government policy and reform. We have seen the Right to Information Act acquiring maturity and we have seen judicial activism that it has led to. All these institutions are needed in a democratic set up. Given the slowdown, what is needed is for these institutions to work together towards some kind of national consensus. I think that is really the challenge. The whole ecosystem needs to regenerate for the seeming deadlock to break.
How and where do you see action before elections?
Across sectors. We have already seen removal of sectoral caps. Frankly, the government has done what it could. When we talk to MNCs with a set up in India, all of them say they would like to buy back floating stocks in the Indian market.
They believe in India’s economic potential and would like to capture as much of the economic upside. The only reason why they are not being able to buy back is because of high valuations. So you have a very strange situation, people are believing in the long-term India story, you think the economy is going to hold on but still saying that the valuations are too rich.
That’s precisely the point. As a nation what is India’s expectation of itself? No
point lamenting over the last thirty months, what is more important is what we are going to do. Everybody used to put aside India from the rest of the world on the basis that India had supply-side constraints which are surmountable.
The demand side is still there, it has not disappeared, may be it has shrunk a little. Why is it that an FMCG giant has recently put in fresh money to buyback equity?
Is it that the consumer story and the investment story are differing?
The demand is coming from demographics and will determine more enlightened policy making. The fact is that 10 million Indians come into the work stream every year, just to find 10 million jobs, you need to grow at 8%. Political leaders are increasingly recognising that it is all about job creation. I think India’s demographics are a strong force and will compel our policy makers to believe that good economics will be good politics.
Investors are getting jittery and there seems to be neither good politics nor good economics? Some policy makers even believe that hiking FII limit in debt is the cause of the rupee fall?
I don’t think the recent FII redemptions have been exacerbated by increased limits. It was more of a yield play vis-a-vis the US markets. At the end of the day, the entire redemption was about $7-8 billion, which is immaterial.
In addition to cultivating different constituencies of investments, India needs to now go back to building a more manufacturing DNA. India has made a name globally in the services sector.
However, we need to bring back manufacturing in a big way so that employment generation gets accelerated and the economy picks up all over again.
How do you get it back?
For instance, look at the DMIC project. It will not just be a trade corridor. The project envisages 7 new cities, each having national manufacturing zones, with a lot of incentives to encourage companies to set up manufacturing facilities. So work is happening already. So far we have gone overseas and looked for capital… we now need to look for manufacturers to come and set shop here.
We need to provide an ecosystem that is much more efficient and where people can get off the starting blocks more quickly than they have so far.
Investments from Japan or any other region have not been really big. And even the DMIC project seem to be facing issues?
We need to recognise that the world has changed post the crisis. Maybe it is time to relook at where we are investing our rupees, dollars and where are we attracting foreign investment from.
Historically, our capital has come from the West, maybe now it is time to look at Japan and the Middle East as well. We need to open up our thinking and build more strategic relationships.