‘Return to pre Covid-19 growth will take a year’, says Kotak Mahindra CEO

Uday Kotak, managing director and CEO of Kotak Mahindra Bank Limited, is the new president of industry association Confederation of Indian Industry (CII). In an email interview with Rajeev Jayaswal, he disagreed with the view that the national lockdown has flattened economic growth instead of the Covid-19 outbreak curve, but added that it will take about a year to get the growth back and more stimulus will be required to achieve that.

The Prime Minister said at the CII conference that he was confident of an expeditious economic revival. How do you realistically see it? What would be the recovery curve? How much time will it take?

It is about how you look and define economic recovery. We are in a completely new era post Covid-19 and thus, revival cannot be evaluated on average. In fact, in CII, we decided against giving a projection on growth or on GDP. If you look at how capital markets or investors are viewing India and the earnings of the corporates, this year is already a wash out and the attempt will be to get back earnings to the February levels by next year. We have to start looking at growth from 2021-22.

The economy has been deeply impacted by the shock coming from the health sector. There has been a lockdown for over two months and even while we reopen gradually, different parts of the country will remain closed. The loss in jobs and livelihoods will leave its impact on the demand side as well. Clearly, we cannot expect a swift recovery. I would say that it will take about a year to return to where we were in the period just prior to the onset of the pandemic.

In an interview with Rahul Gandhi, Rajiv Bajaj said that the government’s lockdown strategy was wrong. He said that instead of flattening the Covid-19 curve, the government flattened the growth curve. Do you agree?

I do not want to enter into a debate with an industry colleague. However, we are talking about a hypothetical situation and we cannot say what would have happened if there was no lockdown. It is certainly likely that the infection would have spread much faster and the government would not have had the time to ramp up the health infrastructure. Further, given the structure of Indian families, it is not practical to say that young people should be allowed to go to work while the elderly stay at home, as they all live together.

What are your suggestions for an expeditious economic recovery while containing the spread of Covid-19?

Our suggestions are laid out in the CII note which gives 10 points which are a combination of short-term and long-term priorities. In the short term, the need is to protect lives and livelihoods. In the medium term, we need to create a foundation for sustainable growth through investments in health, education and nature. A rural-urban re-balance is also required to support economic activity in a more geographically spread-out manner.

Is the ₹20.97 lakh crore package sufficient to stimulate the economy or is more required?

The government has laid out a well-crafted package, which is an excellent beginning for spurring economic recovery. Given that the government is fiscally constrained, it has done well to limit its immediate fiscal spending. For example, the MSME [micro, small and medium enterprises] credit guarantee programme will entail spending only after a few years in case of default. Yet, the fact that the government is providing guarantee of ₹3 lakh crore will encourage banks to lend to these enterprises. Of course, depending on the economic trajectory, more may be required at a future date. But the government will need to balance its fiscal spending against the need for financial stability, given that India does not have a reserve currency.