Legislative reforms important, but executive decisions can pluck low-hanging fruits: Chanda Kochhar
Rise in coal production and efficiency in coal movement are all administrative things that can add a lot to the economic growth, says Kochhar.
Sandeep Gurumurthi: Let us first talk about the big picture. Just a week ago, there was a fair amount of trepidation on the course of reforms and the direction in which reforms will move. But much has changed in the last few days. The government has moved aggressively on a slew of FDI reforms. How do you read the intent behind the move?
Chanda Kochhar: I think the intent has always been very clear. I see the intent being reinforced now. There is intent and a lot of hard work behind. We need to take the country in the right direction whether it is around administrative policy decisions or legislative changes or ensuring the macroeconomic stability.
Sandeep Gurumurthi: Sure. In an interview to ET Now, the finance minister Arun jaitley said that there is a lot of scope for executive decisions. We will talk about legislative logjam, but there is a lot of scope for executive reforms as well. Do you agree with that? What are the key executive decisions that you think that the government can take to push forward the reform process?
Chanda Kochhar: Yes, I entirely agree with this. In fact, I have always been saying that while the legislative reforms are good but there are so many low-hanging fruits that we have look for by taking executive decisions. I think the government is actually moving in the right direction. There is a lot that can be done. So many good things that have started, for instance, all the work that has started on power if we complete it with the SEB reforms, we can see PPAs being signed, Case I bids happening and so on.
Similarly, if we look at the larger projects, so much has been done to sort out the procedural delays. If we stitch up the last mile things together, they can really become a big kick starter in terms of generating cash flows in the Indian economy.
Sandeep Gurumurthi: But there is a concern at the legislative front. Given the political climate, one is not sure if GST will go through. How much of a disappointment will it be if we see GST being stalled once more?
Chanda Kochhar: Well, I think everybody wants GST. So when it comes, it is going to be a great thing. But as I said, there are many other things that we could do. If you go by what roads and highways ministry is saying, we will almost double the current level of construction from 96,000 km per annum to 150,000 km per annum. I think that would become a huge multiplier factor in the economy.
Similarly, the Indian Railways has kept a lot of projects ready. As they go onscreen, that would become a big kick start to the movement in the economy.
Defence could be the next one. A lot of work is being done on the coal side. The increase in coal production and the efficiency in coal movement are all administrative things that can add a lot to the economic growth.
Sandeep Gurumurthi: So if I am getting you right you are saying executive decisions can make up for a potential legislative logjam?
Chanda Kochhar: Absolutely. And I can say that executive decisions are very important to kick start the whole process.
Sandeep Gurumurthi: Let us talk about the FDI reforms that were undertaken just a few days ago by the government, specifically in the banking sector. How beneficial is the FDI fungibility for private banks?
Chanda Kochhar: It did do away with the two sub-limits that were there in the entire foreign holding limits. It has made the process simpler, which has increased the possibility of more participation from foreign investors. Of course, ICICI Bank always had the specific approval in this regard. But now the government has just opened it up for other banks and has made the process much more flexible.
Sandeep Gurumurthi: Even in the case of ICICI Bank, foreign investors own about 67 per cent. Do you see appetite for more foreign capital?
Chanda Kochhar: Yes, clearly because the permissible limit is 74 per cent. Yes.
Sandeep Gurumurthi: But would you not be worried about the possibility of more volatile flows by virtue of having this 74 per cent cap? Is that not a concern?
Chanda Kochhar: No. As I said the 74 per cent cap was always there. It is just the sub-limits that have been taken away. For us, the sub limits anyway did not exist. But I think it has just increased the flexibility.
Sandeep Gurumurthi: Let us talk about the discom restructuring. You have briefly touched upon that as well. That is a key reform that the government has undertaken. But will the debt and floating bonds going to solve SEB's balance sheet problems. Is that really enough? What more needs to be done?
Chanda Kochhar: As far as discom reforms are concerned, they have to be a combination of two parts: One is the existing balance sheet and, therefore, taking care of that. The second important is the reduction in losses going forward. At present what most people are actually talking about is just the first part i.e. taking away the current burden from the balance sheet of the state electricity boards (SEBs).
But it is also accompanied by the next part, which is pinning the states down on reduction in the losses as we go forward. I think that is very critical. So the combination of sorting out the balance sheet issues currently, backed by a clear commitment from the states that the losses will come down in future, will how makes the reforms comprehensive.
Sandeep Gurumurthi: So in the absence of the second leg you are saying...
Chanda Kochhar: No, I am saying it is not the absence of the second leg because the government is clearly talking about that. As they firm up this arrangement state-by-state, I am sure they will firm up the arrangement on both ways i.e. sort out the existing balance sheet and get the states to commit on the next part. That would make the reforms wholesome.
Sandeep Gurumurthi: Since you spoke about the currency, there is a theory doing a round that we should probably allow the rupee to depreciate as it is threatening the competitiveness of our exporters. Are you of that view? Do you think that the currency is fine where it is?
Chanda Kochhar: Well, I think the currency will move as per how markets move globally. As I look at it what really becomes very important is that there should not be sharp spikes in the currency up or down because that is what makes the whole situation very volatile. In that respect, the Indian currency has actually been much more stable compared to the other global currencies.
Sandeep Gurumurthi: You did also mention about challenges in ICICI Bank's corporate book. The bank does have exposure to some big accounts that are under some degree of stress. I know that some action is being taken on the power front. But still, sectors like iron and steel are under a fair degree of stress. What is your outlook on that?
Chanda Kochhar: Well we have to recognise that the commodity cycle is at one of its lowest level currently. Given the way the global economies are moving, it will continue to be low for some time to come. So we have to build that now in our planning, in our assumptions. But in India, a set of industries are globally competitive as far as the cost of production is concerned. For them, it is actually in a way a little bit of an opportunity to say that as the strongest survive they will survive.
There would be a certain sect in the space itself. It is important for us to kind of identify which is that set of globally competitive ones, be with them, work with them, make sure that they survive and along with that look at what the country can do. For instance, India has imposed a safeguard duty; there are other countries which are doing the same. We should watch that and keep doing whatever we have to for our core industries.
Sandeep Gurumurthi: Would it be fair to say that unless that you solve the prevailing issues, our GDP cannot grow at that 8-8.5 per cent because this is critical as far as the infrastructure revival is concerned?Chanda Kochhar: The growth will really from the retail side - the entire government spending that I spoke about. So it is not as if the growth comes only from private sector investment, the other growth avenues will kick in. But private sector investment is another ingredient of growth and therefore is important. I think unless this happens that part of the growth will be subdued.