Keki Mistry, Vice Chairman and Chief Executive Officer of Housing Development Finance Corporation (HDFC), the country’s largest housing finance lender, expects the government to soon announce a comprehensive relief package aimed simultaneously at the poor and Corporate India.
In an exhaustive interview with Moneycontrol, Mistry outlined the broad features of the stimulus for India Inc. He also dispelled fears about People’s Bank of China’s (PBOC) move to acquire about one percent stake in HDFC. “They (PBOC) are passive shareholders. Certainly, this (stake increase) is not with the objective of either taking over the company or taking over the management. There are enough safeguards in the system and that nobody can go and change the management.”
Drawing the broad contours of the fiscal package, the housing finance leader said, “I expect some announcement in the days to come. A relief package means more money in hands of the people, especially poor. We need direct benefits, both, to poor and the industry. This can happen by lowering taxes (direct and indirect). It will fuel consumption and demand. When I say direct taxes – current 43 percent slab is pretty high –reduce it to fuel consumption,” he reasoned.
Mistry dwelt at length on the likely package. “Sectors that are severely dented by COVID-19 need to be addressed immediately. Airline, hotel and real estate need utmost attention. These sectors need a boost in the form of ability to restructure the loan taken from banks, NBFCs or any other lending institution.”
Asked to specify the loan restructuring pitch, HDFC CEO opined, “There is no one formula. I don’t necessarily mean only moratorium. It has to be case to case – it can include extending the term, providing moratorium, etc., as is the individual company requirement. But this has to happen with proper approval of the lending institution board and that too under the stipulated policy framework.”
Using the real estate sector as an example, Mistry detailed the impact of its revival on the economy. “The real estate sector is a huge job creation sector – construction workers, engineers, plumbers, electricians, etc.– directly or indirectly so many industries depend on it. Cement, power, steel and all the ancillary industries are associated with housing. Imagine the number of jobs that can be created by one construction activity. If we can give a boost to real estate sector, things will definitely get better”.
Asked to draw the timeline for economic activity to resume in view of the lockdown, the HDFC official said it was for the government to take a call on that.
“But whenever there is lifting of lockout (whatever date) it should be done gradually. It should be done in a manner in which economic activity resumes gradually. The most important thing is to get workers back. The creation of jobs is paramount. The state mechanism of giving money to the poor cannot sustain forever. Ultimately we have to ensure that jobs get created, sectors that are responsible for job creation are given appropriate incentives to boost demand and consumption.”
Steps to boost co-efficiency
On the relief package impact on the macroeconomy, the housing lender leader said it was not the time to worry about the fiscal deficit. “You worry if there is inflation. You worry if there is buoyancy which is missing not only in India but also globally. Low oil prices are a positive sign for India and they offer a cushion. Unlikely there will be a spike in oil prices.”
What role does he see for India Inc to help revive the economic sentiment? Mistry argued that industries that produce products with high administrative cost component had reason to be cost efficient. But there is no general template here. Each industry has its own cost structure. Cost efficiency, though, can be the overriding mantra.
“The key today is to conserve cash and not spend too much money. It is also time to fortify the capital structure. You may like to increase the capital base while raising equity. Yes, raising equity means dilution,” Mistry prescribed.
He did not see much scope for any further cuts in the real estate sector giving the narrow margins.
In response to a question on fears about (PBOC’s stake increase in HDFC recently announced by the housing lender, Mistry averred, “There are over 2000 FII accounts with HDFC and PBOC is one of them. There has been no active meeting with them and there is no involvement at all in HDFC.”