KV Kamath says India's growth story will not derail, needs to be nurtured properly

A: Thank you for talking with me on this important and interesting subject. I am slowly coming around to the view that there is a disconnect, external, between global thought leaders and central bankers, thought leaders in the sense of theoretical thought leaders, as to how to deal with inflation and interest rates. If you see what has happened in the West, is a complete break from theory. And it is the right time for us also to rethink whether we need to see what the connection between interest rate and inflation is by breaking down the components of inflation and then seeing what medicines are required. In this context, before I talk about the commentary, let me talk just a minute about how well the central bank and the government managed these two over the last two-three years and provided enough liquidity along the way and that is why we are where we are. We did not increase interest rates as one could have expected, liquidity was not tight, and it was kept easy. And look at it today, I would think that central banks continue to do what it has done, watch carefully - and that is what it is doing and not necessarily trying to do what the West may or may not be doing to find a resolution. As far as we are concerned, I just want to make another point. I am getting increasingly disturbed by the fact that we have probably no reliable data good to go on, the policymaker to regulate the monetary policy, and it's coming out now, particularly, let's say in terms of CPI, and I am sure the same will be in terms of other indicators. A question that comes to my mind is are we measuring right? And I think we now need to measure right because we are no longer a small economy. And I am looking at our country going from 3.5 to 7 trillion. And this is something that we need to fix now in terms of measurement so that the policy then can work with numbers if they are comfortable with it. This is the reason I would think we see some debate in the MPC.

A: I don't want to make a call on it. I think that's something that policymakers need to do. But I would think that one would need to look at CPI or other indicators, a little more focused as it were, to understand whether this is something that we can take a decision on. Look at the system as it were, there is a growth momentum, what is happening in that context. Take other indicators that come our way in terms of dipsticks or any other measures that you could take to determine what is happening and then take a decision because we do not want to end up in a situation where we raise interest rates and put the economic engine, which is now fine-tuned, put it out of gear, getting it back in tune is going to take time.

A: Let me say very clearly that I have complete confidence in the steps taken by the Central Bank as the monetary policy authority and the central government. So, I do not think that they will allow this machine to get out of tune. I said, there is a risk that if some people get on this path interest rate increases; we need to go instinct with the West - that's all I am saying, but I am sure that monetary policy authorities will do the right thing, and they have done it over three years. So, I have total confidence in what they will do.

A: As far as NaBFID is concerned, let me put it in context. We started with just my appointment a little over a year back, we have now full leadership set in place. So, it's not just the board and a few people. There is a management team in place for the last three or four months and they are now in the process of starting approvals for the first few loans. The pipeline to me is strong, the national investment pipeline is strong, the monetization pipeline is strong. I think they are working through this pipeline to look at what -- my view is that whatever was there in the mind of the government in terms of what the institution could do, the institution will do but over the next few years and another timeline that was thought of, but now since there is an executive team in place, the executive team led by the managing director are the right people to talk about where the bank is. But moving on to the other part of the question that you said - infrastructure, I see no slowdown. In fact, I see speeding up on two fronts. Again, sometimes there is a question that the private sector is not involved and that is not strictly right. The private sector is not involved in those areas, where over the last 10 years, I think it was probably very clear that these areas have significant implementation risks due to a variety of factors, which are outside the control of the private sector, for example, issues relating to land rights, issues relating to mineral rights, spectrum; I won’t go into the whole thing, which then ended up in projects being stranded. So, it is right that these are done by the government, correct steps were taken to keep the momentum going and look at the progress, we have a lot from the government on the progress. So that progress continues. The private sector, on the other hand are in certain other areas where they have found that the playing field is easier to navigate. So, for example, I would think the headline story there is telecommunications, see the way that business has grown and with the private sector companies coming in, you are probably one of the most robust systems anywhere in the world, at the lowest cost. So, I think the public and private sector will coexist and I would think that the public sector projects that are coming up, and that is where the monetization process comes in play as these assets get going you did not get them off your book, as it were, and use that money to finance something else. And again, I would find out the progress in the road sector and NHAI is doing with Infrastructure Investment Trusts (InvITs) coming in almost every quarter or earlier, getting fully subscribed on day one that too with retail investment. So, I think we are seeing new things happening and I am sure that is all too good. The common goal is that we have to hit that 25-year Amrit Kaal goal that we set, which I think is somewhere between USD 30 trillion and USD 40 trillion.

A: First, I don't want to talk about any specific group. The market is functioning, the banks are functioning and the rest of it is, and I do not really want to comment on it. I will only say this in a larger context that in my 50 years plus of being in the banking business, 52 years to be precise, I don't think that any single group carve out the history of this nation. So, I have no concern, overall, India will continue its path of progress at the pace we have outlined – that is all I want to say, and I do not see any loss of confidence in India, consequent to this. I think the external world now recognizes that we have our own regulatory checks and balances, which will keep things in check. So, beyond that I don't want to speak on any group.

A: Yes, something interesting is happening in the FinTech space. In the sense that 60,000-70,000 maybe now 80,000 entrepreneurs have setup. I have gotten to see a few of them primarily in the financial services sector. And it's an amazing story, the platform value that they have created and what the platform can do is unbelievable. The problem is that their investors’ mind that, all you need to look at is getting to be a unicorn and pile up losses in the interim, which I think is an inappropriate path and that has led to this story that we are talking about of is it stable, will it link to mergers and acquisitions. So, I think there is a disconnect between the value creation on the platform and valuation expectations. This is what entrepreneurs would need to first address and their investors first need to address, thereafter progress will happen because progress suddenly will happen, and these people are contributing a significant part to that progress of our economy. Coming to, what is happening at the deep end, as it were of a technology platform. What I have seen in the last five months, is that the cost of technology has dropped to an extent which is unbelievable. I am a strong believer in Moore's law and that is how we did the rollout in my old bank, ICICI Bank, going back 20-25 years. But today's costs are just unbelievable. When I started to be taking a deep dive, I had an expectation, let's say technology costs would be x. But now I believe that technology costs really are not even 0.2x, maybe 0.1x of what was 5-6 months back. So, with this sort of change in technology costs this is going to do the same thing that low cost of data has done to the wider public that is the digitechs and new builds, the new companies will be able to come into being at very low cost and they could provide great service for the country and there will indeed be some disruption as a process. So, we will see some exciting things going on. The good thing here is that we are at the start of the curve and the whole digital process and the impact of digitalization in India and its impact on the GDP will be probably the next exercise that economists should really work for. I was looking at numbers from China the other day from five years back almost nothing. Today, last when I saw it was, the contribution to GDP was 35 percent. This year, the numbers was 40 percent. So, my belief is that 5 years from now if you look at India, how much incremental contribution will be there from the digital economy is going to be, to me a very exciting number and that number, I will think, will not be less than 20 percent. I think it's in the 20-25 percent to the economy. So, we are all undercounting our growth. We have our growth put out now, but nobody has a fix on what will digital India contribute. It’s going to be a significant part, not only in terms of growth, but also in terms of employment generation. We do not have a fix on the employment generation that is happening. We might need to really recategorize the workers because, for example, if you look at delivery system that is happening, going for e-commerce, we call them gig workers. I think we should not call them gig workers. We should title them properly. We should make sure they are under a structure which is properly implemented, and we should bring to the very center of the what I call the organized labour market, I do not know where exactly they fall in today; we should bring them to central labour market so that we also have a proper idea of what really is employment and what is unemployed. So, I think there are exciting things we could but the bottomline, digital India will contribute a significant part to our growth going forward.

A: At this stage, we are working out, rolling out the plan, not into execution mode. So, all I can say is whatever is said in the demerger document stays. We are working on that to get the demerger out. And it would be premature for me to say till the plan is approved and we roll out. But the background that I indicated to you, the cost substance that I indicated, the leanness that we can build, I think all going to send you into any company’s built out including Jio Financial Services. So, we are looking at a very exciting time of entry where I believe there is another disruption that is happening in the technology context, the disruption happening in the aspirations of people, and the growth momentum. So, all should bode well for Jio or any new aspirant who i's coming at this point of time, with virtually a clean slate.

A: I cannot comment on what you said because I do not know the context with which you said and I have not looked at it. I think NaBFID’s role is very clear and it’s a very expansive role and it could catalyze other institutions and so on. So, there are points where the roles would overlap in a way and that is good because we need more long-term players, but the charter to me appears to be much wider than what is there in Indian institutions, and that's the reason why this institution was created and I believe it is needed given our earlier discussion in terms of what we see as the growth momentum over the next 25 years, the role of infrastructure and the role of government in that infrastructure. So, all these required institutions with long-term capabilities. In this context, what I want to basically touch on is we have, at banks, doing the role of a true infrastructure debt provider as an interim measure. After 2000 or 1995-1996, when the existing DFIs in a way did not have access to funds and went out of that role. Today, we have a situation where those funds are available, those funds are available in the system through the insurance setup, through the pension setup and even through the mutual funds setup for savings and various instruments and so on and directly from the captive market. So, there are multiple sources available today and funding is done through a variety, long-term funding. So honestly speaking, the banks can do long-term lending only for a short time, not as a consistent strategy going forward because increasingly their funding is shorter in shorter term. And as more technology comes into the marketplace as it were, the long-term instruments can be made to look like almost monthly servicing instrument. I just heard that NHAI has in mind to issue monthly interest to its account holders. Can you imagine the change it will make? Here is a government institution, AAA, which the public looks at as government, offering you monthly interest rates which are significantly higher than any rate that their bank can offer. So, there is going to be a whole lot of disruption in terms of the way banks will need to handle their own growth and their deployment process. And if you have, on an average one-year of money or less in terms of tenure, lending it out longer is you are putting your neck on a line where you do not know the consequences. So, I think bankers will be more cautious in lending long out and that is why the government is setting up NaBFID and we need to create an ecosystem to finance infrastructure and that is going to happen, and we will see in the next two years.

A: The single biggest risk addressed and all along it has been unpredictable oil prices. But we now have an indication of what is happening to oil prices for a very simple reason, we are not seeing the world grow at the pace that they expect and I have been tracking numbers from China, where the growth numbers look really low from what feedback I had, which I continue to have in terms of what is happening there. Europe, we all know what is happening, and the US is just treading water as it were. So given that the demand for oil is going to be low in the outside world. So, we are lucky. So, the oil price should then be stable, and we have our own market to cater to which is growing well. So yes, it may be a bit of an insulated story, but we will weather this well. In the meantime, we drive our own strength through the digital movement, but through exports to what I call knowledge services, which is not going to slow down because the world will need that. So, we are in a sweet spot. Growth stalls and when does growth stalls? Growth stalls when there is no demand for what must be produced. And in India's case, the headline, what has to be produced is put that infrastructure in place, whether it is roads, ports, airports, rail systems, or whatever airlines, whatever that needs to go in and look at where we are and where we have to go, quite a long runway. So, if you have a domestic demand that creates employment, that creates aspirations. I don't think our growth story is going to get derailed on that account. What we need to make sure is that we nurture it properly. And as we discussed earlier, the key part of nurturing is study policy, an incrementally better policy which is being done, and interest rates which are stable. The disturbance, the shock could have been caused by external oil and such factors, not by demand because we are in a way insulated. So, I think we are in a good place with digital providing nice as you go along and all of us need to encourage that growth.