Economy seeing blue sky, time to focus on growth: KV Kamath

With a decisive electoral mandate in hand, the government needs to accelerate the process of ‘clearing overdue receivables’ for the corporate sector and ensure revival of the economic growth momentum, top banker K V Kamath has said.

"We are now at a critical juncture in terms of the direction that our economy can take.

“The key priority is to ensure that gross domestic product growth, which has come down from 8-9 per cent levels to sub-5 per cent level, does not slow down any further and indeed, begins to revive," he said.

. . .

In his annual communication to the shareholders of ICICI Bank, its Chairman further said that a decisive mandate that has emerged from the general election results is a very positive development.

"With the worst of the slowdown and volatility behind us, and a clear runway for policy actions to harness India's potential, the economy is now seeing blue sky.

"The first set of actions could be to harvest the low-hanging fruit.

“The steps that had been initiated to clear the bottlenecks in the investment cycle, in terms of last mile clearances for projects, resolution of fuel issues in the power sector and clearing overdue receivables from government agencies to the corporate sector need to be accelerated.

. . .

"These steps alone would ease the stress on the corporate sector significantly and help to bring back confidence," Kamath added.

The comments come at a time when the corporate sector is looking forward to revival in business sentiments on the back of a new government led by Prime Minister Narendra Modi with a clear majority taking charge.

In the recent years, the Indian economy and banking sector have faced significant challenges, while a sluggish business environment and moderation in economic growth witnessed in fiscal 2012-13 continued during 2013-14 as well.

Manufacturing and industrial growth remained weak and there was also a moderation in the services sector growth which had hitherto remained resilient to the weakness in the rest of the economy.

. . .

The challenge posed by the current account deficit was exacerbated due to global concerns over tapering of quantitative easing in the US, leading to capital flight from countries with high current account deficits.

This prompted domestic monetary policy action resulting in a sharp increase in interest rates.

"Corporate sector activity remained muted and expectations of seeing a revival in growth in fiscal 2014 proved to be optimistic," Kamath said, while adding that there were some positive policy responses that alleviated the immediate pressure.

Going forward, Kamath said, the “second area of focus would be to clearly articulate the approach towards key areas of policy, such as taxation, access to land and natural resources and balancing the needs of growth with the issues of environmental protection and climate change.

. . .

“A clear articulation of policy and speed of decision making thereafter would be essential to regain momentum in infrastructural and industrial investment."

For longer term, the ace banker suggested that the government would need to address the structural issues.

"These include the twin deficits and the persistent supply-side causes of inflation.

The government would have to put in place a strategy to address these issues in the context of the country s need and aspiration for sustained high growth," he said.

. . .

Kamath also called for a "technology-driven change" and said "it is essential for our government and our corporates to adapt to this change and drive this transformation of the way we live and work".

The bank's Managing Director and CEO Chanda Kochhar also said in her annual letter to shareholders that "the formation of a stable government with a focus on growth will help realise India s vast potential.

"Stating that the bank has a ‘positive outlook’ for future, Kochhar said, "Our strong and diversified franchise, large distribution network, healthy capital position and sustained improvements in our balance sheet and profitability profile give us the ability to leverage opportunities for profitable growth."

. . .

According to her, the bank sustained and further improved its performance during the last fiscal ended March 31, 2014, "despite an environment marked by elevated interest rates, low growth and significant market volatility".

"Given the macro-economic scenario, asset quality challenges for the banking sector intensified during the year. 

"In response, we calibrated the growth in corporate and small and medium enterprise lending, enhanced our monitoring of the portfolio to enable us to take proactive action and focused on improving our core operating parameters," she said.