Kamath: Stability to reap long-term fruits

The Indian economy, on real terms, is growing at around nine per cent and the fruits of this stable growth would be felt in the long term, said Infosys’ chairman designate, K V Kamath.

Talking to the media at ‘Meet the Press’, an event organised by the Bangalore Press Club, the former chief executive officer of ICICI Bank said, “If we move beyond the actual numbers of our GDP (gross domestic product) growth, and the uncounted 1.5 per cent growth in the system, the total growth accounts for over 11 per cent. The fruits of this stable growth will be felt in the long term.”

However, he said India’s per-capita income lags far behind China’s. The country’s per-capita income lags that of China’s, and it would take another 10 years to log 2-3.5 times the country’s current per-capita income.

However, he cautioned, “We should be in no rush to bridge the current lag.” He said any further acceleration could actually result in “overheating” of the system and could result in inflationary problems.

On the interest rate increase by the Reserve Bank of India (RBI), he said it was a conservative method to tame inflation. The rate rise may not create a huge impact on the manufacturing sector, as it is a sector which has a cash surplus and is also self sufficient. The rate increase would affect the larger number of people—the consumers—and the small and medium businesses in the country.

He also said despite these challenges, no roadblock would derail growth, though the rate increase might also create challenges for the infrastructure sector, which is the backbone of the growth of the country.

Responding to a query on credit off-take, Kamath said if the country’s GDP stood at around 10-12 per cent, the growth in credit would have to be double the GDP and according to the current scenario, this would happen. He said, “We can manage inflation. However, any further prop to push it to a faster pace would make things difficult”.

When asked about the turmoil in Europe and a possibility of a double-dip, he said, “I believe we have to wait and watch”. Earlier, it was the question of companies or individuals not doing well. Now, it is the governments which are not doing well. Though this is a risk there is no possibility of any double dip recession, he said.

On challenges faced by Indian IT firms due to the financial crisis in Europe and the US, Kamath said, “Whenever the crisis has happened, companies and countries are looking for a destination for knowledge transfer and they are looking at a destination where things can be done better and in a cost-effective and innovative manner. This would again create an opportunity for India” 

Discounting lobbying as a weapon to make policymaking favourable, he said, “Lobbying is not the best solution. If consumers find sound economic merit, they are bound to buy the products and services of a company. Companies that have products providing value and prices are competitive, consumers are bound to buy, despite a country’s protectionist pursuits.”