Nagging concerns notwithstanding, experts believe that the government is on the right track with its economic policies
Euphoria has made way for cautious optimism. A year after the Narendra Modi-led government came to power, there are now concerns about whether it will be able to deliver on the promises it has made.
As part of the second season of the Forbes India CEO Dialogues: The Leadership Agenda, Siddharth Roy Kapur, managing director of Disney India; Vikram Limaye, managing director and CEO of IDFC; Habil Khorakiwala, Wockhardt’s founder-chairman and group CEO; Sanjay Shah, co-country head & co-head of Indian equity business, Morgan Stanley and Sunil Kaushal, CEO for India & South Asia, Standard Chartered Bank, spoke about the issues dogging the government and their expectations for the near future.
A few takeaways: They believe there could be short-term challenges in the form of an incremental rise in non-performing assets (NPAs) in the financial sector. To ensure improvement in the ease of doing business, India will need to make it a state-led initiative. Also, infrastructure spending and recapitalisation of state-run banks will have to be stepped up. The government will need to engage with business houses too.
Chengalvarayan: Sanjay, you have been bullish about the markets even while some brokerage firms have cut index targets. Does your bullishness rest on outperformance or on the potential?
Sanjay Shah: We are quite positive about India. Earlier, [policy in] India was two steps forward and one step back; now it is two steps forward and half a step back. We have made progress in cutting out crony capitalism and focusing on social inclusion. The government’s use of technology is also impressive; it is helping in issuing clearances and licences. India is growing at 7.3 percent (according to the new data series) annually and this can improve to 7.9 percent in the next fiscal, driven by infrastructure and public sector spending. In terms of India’s fiscal health, we have never been better. Forex reserves are at an all-time high, inflation is at a multi-year low; foreign direct investment continues to rise; both fiscal and current account deficits are much better contained than in the past.
Chengalvarayan: Vikram, how much can the long tail lash and wreak havoc? Limaye: It is a long tail but the problem is that some of our largest business houses are also under stress. We cannot be long on India and short on infrastructure. We cannot grow at 8-9 percent in a sustainable way without infrastructure growth. We are counting on a system which is 60-odd years old and is not structured for where the country needs to be for the next 30-40 years.
Chengalvarayan: The government is calling 2015 as the bulk drug year. Is it barking up the wrong tree?
Khorakiwala: Yes. We get carried away by China [and its story]. India buys intermediates from China which is a low-value creation activity. It then develops the active pharmaceutical ingredients, makes formulations and sells them at much higher valuations. There’s nothing wrong, but some bulk drug companies have concerns.
(This story appears in the 24 July, 2015 issue of Forbes India. To visit our Archives, click here.)