India missed the bus; need firm leadership: Vikram Limaye

A: Absolutely. Just a couple of things. My return to India had nothing to do with the economic cycle because it was timed way in advance. In fact, I was planning to come back couple of years before I actually did come back and my family moved back almost two-and-half years before I moved back. So at that point in time in 2002-2003, India was really on nobody’s radar.

But to your point, I am actually quite disappointed as are so many other people in the country that we have actually missed a golden opportunity. In my view, given everything that we had going for us and the fact that growth globally had slowed down quite a bit, and there was just a lot of liquidity all over the world. We could have actually attracted all the capital that we needed to build out the country, whether it is from an infrastructure perspective, whether it is from a manufacturing perspective. We could have been in a completely different zone today.

Q: When you say we missed a golden opportunity, has the bus left the station or can we get back onto it?

A: We can but the point is that at one level investors have given India multiple opportunities over the last 10-15 years and it is always about the promise and potential of India, which frankly I believe even today, but the point is: we have always disappointed every few years and investors at some point in time are revisiting whether fundamentally and structurally we are actually capable of achieving our potential given everything that goes on in terms of decision-making, politics.

Q: Are we capable?

A: We are capable but the point is it requires decisive leadership, it requires someone to be able to get a strong enough mandate and we require some better strategic thinking in the interest of the country. I am actually quite optimistic that as a country we would be able to get back to our 7 percent growth level but it is actually not a given, we have strong domestic drivers that would allow us to get to those levels because the consumption story is strong and there is a large demand for investments in the country.

So we have all the ingredients to get back to our growth trajectory but we need to do a few things to make sure we get there. First of all we need to continue to focus on macro economic stability because that ultimately is exceedingly important for the long-term and that involves making sure that the fiscal deficit is under control, the current account deficit remains under control, the currency is stable and therefore investor confidence is restored in the macro aspects of the economy.

Q: Political stability if you mean government that comes back with an absolute majority looks like it is going to be very difficult. So are you then saying India is not going to join the rank of say the 35 developed countries of the world?

A: I am not saying that, I am saying even in a coalition frame work if you have the right people with a strong leadership I think it is doable, it is not that it is not doable. At the end of the day there are a lot of states that have demonstrated progress. So it is not that you cannot see progress on the ground. Unfortunately the central government has been quite dysfunctional for a few years and we had to count on strong state leadership for progress. I think if we are able to get our acts together at the central level as well it would help a great deal because that ultimately is the external face of India.

Q: And it has been hurting your business as well, I think infrastructure funding has slowed down. The FM said that the cabinet committee of investments had cleared almost Rs 4 lakh crore of stuck projects. Are you feeling the difference in the ground? I know last quarter you said that most of your new financing was really not new loan growth but with Rs 4 lakh crore of projects having been cleared, when will you feel the effect of that?

A: I think it will be some time before the decisions that are taken by the cabinet committee actually get translated into reality on the ground and cash flows for projects. I think it is important to recognise the fact that at least the government has taken a decision on these projects.

Now the truth is in our country decision making to implementation can be any period of time and I think we need to focus on making sure that some of these areas are fixed as of yesterday for instance the power situation needs to be fixed quickly because it is critical for India\\'s GDP growth, you cannot hope to get to 7-8 percent GDP growth without power. So it is critical not only because it affects IDFC’s businesses in infrastructure sector but it has an impact on the broader economy. Without power you cannot grow. So it is important to fix that.

Q: Are you hopeful that the signs coming from Delhi at least they recognize the problem or seem to recognize the problem which two years ago wasn’t the case. So when you say it will take some time for it to be effectively felt on ground are you hopeful that it will be felt in the desired time frame or you think this will also just disappear?

A: I think a couple of things, one is the issues that we are talking about, we have been talking about for sometime whether it is the availability of fuel as in coal and gas and coal at least they have made some progress in making some announcements. Gas there is still significant uncertainty. And State electricity board reforms, these are issues that we have been talking about for a few years and it is not that the government doesn’t understand these issues. They obviously understand, there have been multiple representations that have been made by industry, by financiers, by everyone.

They have now taken some decisions to move forward. I think it is good that at least we have taken those decisions including signing of FSAs for coal supply etc. for those to actually translate into projects seeing the benefit of those decisions in terms of cash flows, tariffs, etc, I hope will happen soon because it shouldn’t take that long. But unless it actually happens, it is hard to tell because in the past people have been disappointed with the delays after announcement and then the translation of that into reality including the signing of FSAs took a very long time.

Q: Are you seeing some improvement in SEBs because of the pressure brought on by lenders as well?

A: I think SEB reform is a positive because at least the states that are in the worst shape have signed up for reforms. But the reality is it is too early to tell because this requires sustained disciplined tariff increases over a period of time so that we are not back to square one and we actually have a healthy SEB system which is critical for the power sector. Unless the buyer of power is financially viable, you are not going to have confidence in the system to develop assets and for financers to lend to assets.