See GDP at 8%, 20% credit growth in FY11 : Uday Kotak

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See GDP at 8%, 20% credit growth in FY11 : Uday Kotak

Uday Kotak, Vice Chairman and Managing Director of Kotak Mahindra Bank pegs India’s FY11 GDP growth at 8%.

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The debate through the day, on the first day of the World Economic Forum Annual meeting, has focused on what form of recovery the global economy is going to take. What kind of withdrawal governments across the world are likely to make and how that's going to hurt the recovery or delay it and of course the big debate or controversy around President Obama's proposals on the bank tax and the new de-risking measures that he has proposed for Wall Street institutions.

In an interview with CNBC-TV18, financial services veterans, Vis Shankar, Member - Group Management Committee of Standard Chartered and Uday Kotak, Vice Chairman and Managing Director of Kotak Mahindra Bank discuss these issues.

Below is a verbatim transcript of the interview. Also watch the video.

Q: I know it's only the first day but what the conversation here is? Is it one of more confidence amongst business leaders? What about the financial services industry?

Kotak: The world seems to be still concerned about sustainable growth. There is a view that the crises is behind us but we are in a period of time where we will see sluggish growth. There is a worry about the shoe falling again somewhere, particularly the whole area is sovereign debt defaults, which is a bit item on the minds of people and therefore all in all the view is cautious.

Shankar: If it was a Hollywood film, 2009 would have been called the Great Escape. If its 2010, people are talking about The Lost World. What is clear is that we do have a new world order where there is a shift in economic power and balance to East from West and also probably a balance of power from the operators to the regulators, from the private sector to the governments if you want to view it that way.

What is unclear and what I would agree with Uday completely is what is going to be the focus on interest rates. Are we building up another asset bubble? Will there be a double dip? What about exit strategies? Are countries going to act unilaterally as they either exit or they introduce measures for regulation? So those are all real concerns.

Q: I am glad you brought up exit strategies because in few hours from now we are going to have President Obama's State of the Union Address and it's likely that he may announce some sort of budget or spending cut or freeze and that brings the entire fiscal deficit conversation in focus. It's something that economists and bankers have been talking through the all course of last year saying when is the withdrawal going to happen, how smooth is it going to be, what implications it will have for recovery. What is your sense? I know that situations are differing in the developed world as oppose to the emerging world. But how quickly do you see governments actually embark on a path of withdrawal of at least the fiscal stimulus and then of course you got the monetary situation?

Kotak: I'll talk about US and Europe and my sense is withdrawal of fiscal ease is not happening in a hurry. We are going to see both monetary policy, which will continue to be pretty easy in the Western world, at the same time fiscal policy will be spend your way out of this trouble.

Q: Would you agree with that?

Shankar: I think so. You do need economic growth and you cannot have economic growth if you suddenly start to squeeze liquidity and as it is bank lending in many of the western markets is fairly constrained. So it is tough.

Q: I was talking to Martin Feldstein last week and he said that if this government - and he was specifically talking about the US - doesn't do anything about the fiscal deficit problem that they are going to face in the out-years ie 2015-2016 and doesn't send those signals out now, it could be disastrous for the interest rate situation. So I am just curious, don't you think maybe it is time in the next three-five or six months for governments to at least start sending these signals out on budget cuts, on spending cuts and reining in deficits?

Shankar: Yes, absolutely. But this imbalance has been built over a long period of time. So if you talk about reducing the imbalance, which we need to, ideally we need to go to a Shakespearean economy - neither a borrower nor a lender be. Where there is perfect equilibrium between the East and West, between the spenders and the savers but it cannot happen in a hurry.

Again, what are the implications to the East if the West stops spending because even today two-thirds of the world's economy - USD 61 trillion economy - is contributed by the West. So it is easy to say East should spend more and West should spend less and save more but it is a tough equation.