To deal with the current economic crisis, India has to find the right balance between leaning towards a high fiscal deficit and ensuring financial stability, newly appointed CII president Uday Kotak said on Thursday.
“For substantive economic recovery to kick in, government spending would be crucial. However, with an increasing fiscal deficit and mounting government debt, the economy runs the risk of rating downgrades which has consequences,” Mr. Kotak said during a video conference. Following Moody’s downgrading India’s rating recently, Mr. Kotak said any further downgrade will make India susceptible to flight of capital and leave its currency vulnerable. CII believes that the economic pain and the losses will have to be borne by three entities: individuals and businesses, the government and the financial system. “Perhaps, the government will have to take on a disproportionate share of this pain in order to ensure long-term survival of businesses and a financial system strong enough to support the recovery in the real sector,” Mr. Kotak said.
Mr. Kotak said it was reasonable to presume that Indian economy would witness a contraction in FY21. However, the question is how deeply negative the growth is likely to be.
Stressing that there is a need to think out-of-the-box, Mr. Kotak said there is a need to “dramatically increase” spending on healthcare and education, while also focussing on Mother Nature. “This is not normally what businessmen would ask for. We are saying build India for the future,” he said.
On relaxations in labour laws in various States, Mr. Kotak said that change is needed to get investments back and there is also a need to ensure that a social security framework is created for ensuring fairness to the workers.
“The fact of the matter is that private investment for the last few years has been lagging…we need to try and see what those reasons…only investment will create sustainable jobs in this country. And therefore, there has to be an emphasis on reform. Having said that, we also need to create a simultaneous Social Security system that as we go to a more open economy on labour. There has to be a Social Security safety net which the state needs to have in place simultaneously,” he said.
Pointing that today the labour issues faced by industry is mainly because of the condition of the migrant labourers in some of those areas. “…we must make it attractive for labour to come and take up a job…we have created slums, very poor quality of life.”
He said that for the first time in India, reverse migration is being seen with migrant workers going back to their hometowns. “We should take this as an opportunity to create a more geographically distributed model of development…Industry should be set up in the rural hinterland.”
Asked about the Supreme Court rapping RBI over non-waiver of interest on loans for the moratorium period, Mr. Kotak reasoned that banks are intermediaries between depositors and borrowers. “We cannot have a one sided contract where we allow moratoriums on interest to the borrowing side and, of course, banks have a fundamental obligation to pay principal and interest to the depositors. It cannot be an unequal game. People who are asking for a moratorium on interest, please keep in mind that you also happen to be deposited somewhere. Do not think about saying moratorium on what I borrow, but I must get my full interest on deposits.”
Banks, he said, have a bigger duty to serve depositors, who are core for the financial system.
Replying to a query on anti-China sentiment, Mr. Kotak said, “…in a global context…There are two elephants fighting. We don’t want to get into the crosshairs of that fight. We’ve got to do what is right for our country and our people and based on the economics of where we are.”
“If there is unfair dumping based on non transparent pricing, I think India will have to respond. But otherwise, we should be open to trade. And we should be open to engaging with China which is a solid global power today. And we must leverage that opportunity for trade, but not be treated unfairly,” he said.