CEO, Kotak Mahindra Bank
Budget 2021: Uday Kotak Decodes Economic Survey 2021, Says 'Broadly Agree With 11% GDP Growth' |
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Finance Minister Nirmala Sitharaman tables the survey in the parliament. With Shereen Bhan is Mr. Uday Kotak who is going to Decode the Economic Survey and will tell us what he takes away from this. Mr. Kotak while sharing his opinion said that he broadly agrees with the estimate of 11% GDP Growth. Watch the video to know more.
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About Uday Kotak
At the CII Annual Business Summit 2026 and other recent events, Uday Kotak warned that India has not yet felt the full economic impact of the West Asia conflict, stating that higher energy prices are "coming big" and that consumers have not yet felt the pressure. He said that existing fuel inventories and oil companies acting as shock absorbers have delayed the transmission, but argued that a shock is imminent unless the conflict stops. Kotak also described the global order as shifting toward a "tribal" mindset focused on territory and control over assets, citing remarks by Donald Trump about war spoils and charging rent for the Strait of Hormuz as evidence of a return to "true colonialism." Kotak argued that India has "financialized too early," with companies overly focused on short-term stock prices and quarterly results rather than long-term investment. He contrasted this with Chinese companies, which he said prioritize R&D and long-term strategic dominance. He also called for a national debate on the role of state-owned enterprises, noting that much of China's growth has come from such companies and that they are "not necessarily the wrong thing." Kotak urged businesses and policymakers to "prepare for paranoia" and be ready for tough times rather than waiting for a shock.
Transcript (17 segments)
✨ AI-enhanced transcript with speaker attribution
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Host0:02
You're watching the CNBC TV18 special where we're decoding the fine print of the economic survey. Over 500 pages of what the Chief Economic Advisor Krishnamurthy Subramaniam has put together in terms of policy prescription going forward. Joining me now to take us through what he makes of what the survey is highlighting is Uday Kotak, the President of CII and the CEO of Kotak Mahindra Bank. Mr. Kotak, always a pleasure. Many thanks for joining us here on CNBC TV18. Let me start by getting your comments on the growth projections that have been put down in the economic survey. FY21 GDP estimated to contract 7.7%, and as far as FY22 is concerned, estimated real GDP growth at about 11%. The survey is also calling on the need for more counter-cyclical fiscal measures. It does acknowledge the fact that perhaps India didn't do as much as was expected in terms of fiscal stimulus, but that leaves us with the elbow room to do more. So in the context of where we stand as far as growth is concerned and the fact that the survey highlights the need for more counter-cyclical fiscal measures, what is the expectation?
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Uday Kotak1:06
I think the survey has highlighted some of the key issues, including the fact that the vaccination drive is going to help in the V-shaped recovery which we are hoping to see. And I agree broadly with the Chief Economic Advisor's number of 11% GDP growth in the next year. But we must keep in mind that it is of a lower base. There has been a negative base for the current year, and therefore 11% is not a sustainable number but a number specifically for the next year. Having said that, I do believe that the recovery is getting momentum and legs, and we must do everything to nurture and protect it. In that context, the fact that the fiscal deficit for the current year will be higher than anticipated has created some stimulus. Therefore, the way to ensure that this recovery nurtures, in line with what the survey says, is to withdraw the level of fiscal deficit more gradually. At CII, we have recommended a three-year period over which we normalize the deficit rather than in one year, which effectively needs additional measures to keep the economy at a higher boosted dose than normal fiscal data.
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Host2:25
Yeah, you're talking about the need for additional measures. And the survey also points out, and I'm reading out from it, it endeavors to provide intellectual anchor to the government to be more relaxed about debt and fiscal spending during the growth slowdown. So what would be the acceptable, the palatable number in terms of government borrowing as well as the fiscal deficit, even though you said that you have put together a roadmap of what the government should achieve over the next three years?
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Uday Kotak2:52
I think for the immediate fiscal year ahead, which is 21-22, our view is a fiscal deficit number of around five and a half percent of GDP versus the historical normalized expectation which was three and a half percent. So that is the additional boost which we must continue for the economy in 21-22.
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Host3:13
I want to talk about something that the survey highlights. It's got a whole chapter, Mr. Kotak, on why the survey believes that India's sovereign credit rating doesn't reflect its fundamentals. In fact, I'm quoting from the survey: it says never in the history of sovereign credit ratings has the fifth largest economy been rated as the lowest rung of investment grade at triple B minus. India's fiscal policy must not remain beholden to a noisy biased measure of India's fundamentals. India's forex reserves can cover an additional 2.8 standard deviation negative event. It is imperative that sovereign credit rating methodology be made more transparent and less subjective. What do you make of the fact that so much of the survey's time, a whole chapter, has been dedicated to why there needs to be a review of the manner in which India's sovereign credit rating is dealt with?
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Uday Kotak4:04
You know, if you look at the rating agencies, there is a natural home country bias, and that also comes from the fact that the US dollar is a reserve currency and India is not. But to the extent to which we are not a reserve currency, we will not enjoy the benefits of a globally acceptable currency. On that basis, the US dollar, the euro, and to a certain extent even the pound and the yen have the advantage of being a globally traded currency, which India is not. So this is a disadvantage which comes because we are still not a fully convertible currency. Therefore, the rules which apply to the western nations and people with free currencies will be more restricted for countries like India. Having said that, the fundamentals as has been highlighted by the Chief Economic Advisor for relative ratings, if I see in say even in eurozone, some of the south countries they enjoy the benefit of a common euro currency. And to a certain extent, rating agencies have historically had a western world bias. I hope that changes over time and India gets its rightful place. So I fully believe that India's fundamentals are better than what ratings reflect. Having said that, India does not enjoy the advantage of a free currency.
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Host5:27
We don't enjoy the advantage of a free currency, as you point out, Mr. Kotak. But do you believe that the ground has been set by way of what the survey is pointing out where perhaps we could see the government say all right, we will do what is necessary even if that means the expansion of debt to GDP, and as the survey points out in its own language, not be beholden to ratings?
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Uday Kotak5:50
The survey has certainly got a point, but I would also like to highlight the fact that when the rating agencies look at India's debt, they look at the central government debt, they look at the state government debt, and they look at the off-balance sheet debt. And therefore, we need to ensure that we have a more transparent picture of our total debt as we look at our relative ratings in this world.
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Host6:15
Okay, let me ask you about another important aspect of the survey. It highlights and there's a whole chapter on dealing with inequality and the growing inequities in different sectors. It talks about the fact that the policy focus does not imply that redistributive objectives are unimportant, but that redistribution is only feasible in a developing economy if the size of the economic pie grows. India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie. How would you read into that statement, sir, in the context of the possibility and the apprehension that we are perhaps going to be faced with higher taxes, whether it's a billionaire tax or what have you?
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Uday Kotak7:00
You go back to the 60s and the 70s when India was trying to copy the Soviet model. We probably made the mistake at that point of time to focus disproportionately on how you divide the cake rather than increasing the cake. I think while distribution is important, we must first ensure that the size of the cake is growing. And India should not make the mistakes it's made particularly in the 60s and 70s. At one point of time, if you would recollect, the marginal tax rate was 90 odd percent. So we have to be careful we don't fall into the same ditch, and rather have growth with equitable distribution as a combined objective, but not distribution at the cost of growth.
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Host7:51
Yes, one of the other aspects that the survey talks about is in the context of forbearance, Mr. Kotak, and I want to get your comments on what you make of those statements. It says forbearance represents emergency medicine that should be discontinued at the first opportunity when the economy exhibits recovery. It also highlights the need for an asset quality review exercise. It says it must be conducted immediately after forbearance is withdrawn. When do you believe we're getting anywhere closer to some of the measures that were announced, a withdrawal of the forbearance, and do you believe that an AQR is the need of the hour?
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Uday Kotak8:34
First of all, in 2020, what we saw was an emergency, and therefore the need for steroids was inevitable. And on that, I think we had the right thing: having an accommodative monetary policy and allowing for stability at a time when there was a big shock to the Indian economy because of it. As we get out of it, I do believe that we must get to cutting-edge practices. And in that context, we must get out of a situation where the true balance sheet picture is not clear. As I stand today, with challenges including a case pending in the Supreme Court, it is leading to a true picture of the balance sheet not getting clear as of today. But over 21-22, we must move to getting balance sheets clean and getting the financial sector adequately capitalized to be the catalyst for the growth we need. 11% in 21-22 because of the base effect, but beyond that, if we have aspirations of growing at 7% plus, we will need strong financial sector balance sheets, and then we cannot have a situation where the truth is not known.
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Host9:50
Right, one of the other aspects of the survey talks about, sir, and this is something that we've spoken with you about, is the need for moving fast on privatization. It says the government must embark on a significant privatization exercise of CPSEs and speed up big-ticket strategic sale privatization of large CPSEs like Air India, BPCL, Container Corporation, and Shipping Corporation. It hasn't specifically mentioned banks, I don't know whether it's somewhere there in the fine print, it's over 500 pages of it, but at least the focus and the thrust on moving ahead with privatization is clearly articulated there.
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Uday Kotak10:26
I think the time has come for India to be thinking about a Margaret Thatcher-like privatization initiative, and we must go ahead on it with passion, pursuit, and surgical execution to really get the Indian economy unshackled. Time in my view has come for that.
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Host10:45
I also want to get you to interpret how you read the Prime Minister's statement ahead of the start of the budget session. He said Finance Minister Nirmala Sitharaman delivered three or four mini budgets through 2020, and budget 2021 should be seen as a continuation of those measures. So are you expecting more of the same, part of the Atma Nirbhar package that we saw being unveiled in 2020, or do you believe that we are going to see a significant bold budget?
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Uday Kotak11:15
The Finance Minister has laid down some ground rules already over the last eight to ten months, one of which was the government exiting from non-strategic sectors. So maybe the Prime Minister is alluding to some of the statements she has made and actions on that being reflected in the budget as a continuum. And I share fundamentally that we should not be thinking about the budget as a one-time exercise, but as a path towards the consistent pursuit of the goals that the nation needs to achieve.
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Host11:50
All right, Mr. Kotak, thanks very much for joining us here to take us through your first take on what the economic survey highlights, some of the interesting ideas or policy prescriptions that the economic survey highlights here. Thanks very much as always for joining us here on CNBC TV18. We'll of course check in with you on budget day. Appreciate your time. We'll take a break here. There's a lot more coming up. Don't go anywhere, we're back in a moment.