The Government should marshal all its resources to boost growth rather than worry too much about the fiscal deficit and containing inflation, according to Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company.
In an exclusive interaction with journalists at BusinessLine ’s Mumbai office, Shah said everything can be sacrificed to achieve growth, because once it is achieved, everything will fall into place. By improving growth, the government could improve supplies and that will ensure lower inflation.
Funds at reasonable cost
The government should provide ample money to the industry at a reasonable cost for restarting growth. It has to facilitate corporates to tap both debt and equity. Shah, who heads the fund house that manages about ₹1.70-lakh crore in assets, also pointed to China, whose debt-to-GDP ratio stands at 300 per cent.
“While punishing misbehaviour, we have to create a risk-taking culture and should not punish every failure. The Indian start-up culture does not encourage failure like it is done globally. Only entrepreneurs who borrow money and take risk will create growth; the government won’t be able to do it,” he added. Had the government privatised BSNL and MTNL when the telecom sector was booming, it would have made ₹1-lakh crore. Now, it is talking of providing them ₹1 -lakh crore to survive.
The time is ripe for the government to focus on growth as all other components that threaten economic growth such as fiscal deficit, inflation and banks NPA are under control. Shah said whenever there is a Pay Commission recommendation, the fiscal deficit would go up by 1.5-2 per cent. This time around, it fell by 0.6 per cent because the government has decelerated economic growth by curbing the credit growth to 12-14 per cent from 22-24 per cent. Now, inflation is at 4 per cent because interest rates have been hiked significantly. Credit growth, which was at 24 per cent, is limping at 12-14 per cent today.
In 2014, for every ₹100 of GDP growth, banks were providing credit of ₹144. In 2018, for every ₹100 of GDP growth, banks were giving only ₹88, Shah said.
All these measures impacting liquidity were taken to lower inflation and the contain fiscal deficit. However, since last May, the RBI has increased liquidity in the system by over ₹1- lakh crore. Now that the fuel has been provided, the economy should start accelerating, he said.