Capex weak, China dumping hurting GDP growth: L&T boss

Larsen & Toubro chairman A M Naik Friday said he does not expect any major capital investment for the rest of the year so as to make a difference to GDP growth.

"Capex has not started yet, because a huge amount of capacity is going under utilised in auto industry, consumer electronics. So new factories and new capital expenditure is yet to take off and I think there is a lot of surplus capacity, almost in every manufacturing activity or every product that is made," he said in an interview to CNBC-TV18.

Also Read - GDP: Economy grew at 4.8% in Q4, 5% in FY13

Naik blamed imports from China as one of the factors responsible for unemployment and economic weakness in India.

"We are creating 5-10 million job every year but in China and not here. I think we have USD 40 billion surplus every year in favour of China. All manufactured goods, all the solar plants are closed. Lots of small factories closed. Unless you put anti-dumping duty on China, until they become a market economy, you will not create new jobs," Naik said.

Also, he feels a 25 basis-point reduction in interest rates will not be enough to revive the investment cycle, and India was staring at a serious infrastructure problem unless it made FDI in the sector attractive.

Below is the verbatim transcripts of the interview to CNBC-TV18

Q1: The GDP number at 4.8 percent seemed to give the indication that at least we are not worsened from the third quarter. Are you getting a sense that things are on the mend at all or at least the deterioration has stopped?

A: I would say deterioration maybe now on the verge of stopping.

Q2: Are you getting the sense that industry is enthused to at least go in for some early signs of capex?

A: Capex has not started yet, because a huge amount of capacity is going under utilised in auto industry, consumer electronics. So new factories and new capital expenditure is yet to take off and I think there is a lot of surplus capacity, almost in every manufacturing activity or every product that is made. Infra maybe showing a sign of take off.

Q3: Are you expecting a pick up in capex in the second half of this fiscal year considering that we are entering into the election period as well?

A: One thing that we keep talking about is Foreign Direct Investment (FDI). We should make FDI or for that matter investment by Indian companies so attractive for building infrastructure which is the basic building block for service sector, agriculture sector, industrial sector, tourism sector, all sectors that whether it is along with the tax sops or with long-term tax holidays; whatever and more and more FDI should come there, not what we are announcing where the FDI is very small in number, but the job creation is not that much.

I think most important part which none of you have made very strong pitch about is that we are creating 5-10 million job every year but in China and not here. Our Prime Minister has said time and again we need to create 10-15 million jobs. I think we have USD 40 billion surplus every year in favour of China.

All manufactured goods, all the solar plants are closed. Lots of small factories closed. It is not a market economy. I have time and again said that it is a managed economy. Unless you put anti-dumping duty on China, until they become market economy you will not create new jobs.

Q4: You just referred to the fact that there is excess capacity in several sectors and not enough consumption you were referring to in consumer durables to automobiles. Are you getting a sense therefore that this lack of fresh capital investment is likely to be the trend for the remaining part of 2013 as well? You will not see the first sign of expansion up until 2014?

A: I do not see the capital investment taking place for the rest of the year so much to make an impact on GDP. What I told you and which most of the time media has ignored is the China factor.

Every time I speak of China factor it is put aside. That is one thing which can improve the GDP by 1 percent and manufacturing growth to 12-13 percent. Second, please open up entire defence which will create millions of jobs in ancillaries and small scale sector. These two single initiatives can make a major impact on GDP and we keep talking nothing but FDI.

Q5: Would you think a change in interest rates as this juncture is going to make a big difference? Expectation is that in June the governor may decrease rates by 0.25 percent. The consensus now is that he may not, but will that make a big difference at all to the economy at this juncture especially since you tackle infrastructure?

A: I do not think 0.25 percent makes a big difference. Anything less than 0.5 percent is not going to be of great significant impact. But as I mentioned unless we spend on infrastructure more and more, you will have to keep spending money for next 25-30 years, by the time the old infrastructure will need to be replaced.

So you are going to be in a serious problem unless and until you bring lot of investment in infrastructure from around the world. So if you want to have FDI, make this sector very attractive.