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ET Now: Talking about the expectations from Narendra Modi, don’t you think that a man has a lot of hope and money behind him? Despite his good intentions, there are structural problems in the economy and even the prime minister doesn’t have a magic wand?
KV Kamath: If you look back 10 years ago, the economy was approaching double digit growth despite all the structural problems. Now you have a leader who has a known predilection for fixing things and making sure things work out. It’s the same set of structures, the same group of people who are running it. You have the right leader who can lead the effort.
ET Now: The other day we met Mr. Birla with the Finance Minister and as soon as he left the meeting he said that he expects the economy to improve in three to six months. He says that he is now going to start investing in India. We haven’t heard many corporate leaders say that. You have the pulse of the mood of Corporate India. When do you think corporate leaders will start investing?
KV Kamath: The first price comes from the market. The collective wisdom of the market is that action is taking place and we will move quickly. This improves the confidence level of the industry. Now we need to see if some of the ground conditions which are necessary to get people back into investment mode are going to change. Today I read that a large slate of reforms or projects that are stuck will be addressed in the next few days. If that happens, you will see a huge change in investment mindset, as it were.
ET Now: It could happen in as little as three months. Is that what you think?
KV Kamath: I think between three and six months this may start happening. But we want that to be incremental investment. In case of stalled projects etc., it is sufficient to harvest the crop in the first six months.
ET Now: Corporate India will also wait for the budget. Given the nature of the mandate we have, the power this government has in Parliament, would you expect drastic reforms in this budget itself?
KV Kamath: I don’t want to call or second guess what someone is working on. But I think it will be a budget where you try to have fiscal discipline and do whatever is necessary to achieve that discipline. Now in what measure, in what combination, the government has to be called. I think one thing people will see in the budget is fiscal discipline and a way to bring the deficit under control, say, over a period of three years. If it’s well constructed and well expressed, you’ll see the cheer going up.
ET Now: Do you find the 4.1 percent number a bit difficult?
KV Kamath: If you eliminate waste, you eliminate theft and eliminate what is not necessary, 4.1 can be achieved.
ET Now: When do you think fiscal and monetary policy will start working together? When do you expect rates to change?
KV Kamath: With regard to monetary policy, we always say that let’s look at the constructive design of the fiscal deficit. We know what it is and where it will end. Once they see that building up for this year, and say, two years down the line, then I believe they should have more confidence to tinker with rates, or let inflation fall by itself. should start. We see that many people have come up with several solutions, including release of food stocks, thrust on APMC reforms, etc. I am sure this is something that the government will understand very quickly and take all or some steps that will give the policy makers the confidence to reduce interest rates. We should see it happen in the next 12 months in the current financial year. I think it should start happening in the first six months.
ET Now: A quarter percent or more during the year?
KV Kamath: I don’t have a call on this. Let’s see what happens. Everything will depend on where the deficit numbers come in and whether you are able to bring down the rate of inflation. If these turn out to be positive, rates may move higher.
ET Now: What is your outlook for growth in the short, medium and long term?
KV Kamath: There is not a single digit in my long term number. It is of two digits. So you can guess it.
ET Now: During the tenure of this government?
KV Kamath: I think it will happen during the tenure of this government.
ET Now: First term only?
KV Kamath: This will happen in the first term of this government. that is for sure. If that’s the way they want to proceed, I am sure we will see double digit rates in the first term of this government itself.
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