Mr K.V. Kamath,Chairman of ICICI Bank and Infosys, is a diehard optimist. Despite negative sentiments shrouding the industry, Mr Kamath believes growth is happening in many ways, as presented by anecdotal evidence. Business Line caught up with him at his Infosys office in Bangalore's Electronics City a day before the Budget was to be presented. In an hour-long interview, Mr Kamath spoke on a range of issues, careful not to speak in too much detail on business plans of the respective firms, as that is the prerogative of executive management.
Excerpts from the interview:
When you look at growth in India you first have the government's helicopter view of things. Second is anecdotal evidence of what you see around and we need to give the most weightage to that.
If you look at the services sector, which comprises 60 per cent of the economy, it is not seeing a slowdown…whether it is knowledge or financial services industry, or telecom, none of these are experiencing a slowdown. You may argue about the exact growth rate. If you look at banks, they will grow at 17-18 per cent, which means a greater ability to take deposits, with the huge push towards inclusiveness. This means they will have to increase their people, physical infrastructure and technology, they have to spend on all these. So, the financial sector will grow steadily.
And, if you look at manufacturing, companies have been doing their own thing for the past three-four years. Just 10-12 years back, manufacturing companies leveraged themselves two times; implementation period was four years. All that has crashed; implementation is in 18 months, and they are meeting two-thirds of funding through internal accrual. Scale is better, quality has improved.
You have to give credit to the system that has improved. This, to me, is the true reform — the speeded-up productivity in the way in which business can be done. Whether it is projects or whatever else, you have eliminated shortcomings. In 1997-98, to get 200 phone lines at ICICI Bank, I was told you had to wait for three years. Today, when I tell that to youngsters, they don't understand what I mean. To me, that is the best advertisement for reform; there is a total disconnect between the way things were and now. It's right across, whether in cars or motorcycles.
So where are the bottlenecks that you see?
Infrastructure, as I see it, is trying to catch up with demand but we will continue to lag. If you take a holistic view, we are catching up fast in some areas, such as telecom, but in power we are lagging, and that is worrisome. The ability of Indian entrepreneurs to be on-course and on-time is now given; the ability of the system to get the power up and running is not good and that's the worrisome part.
Overall, I don't think there is a slowdown. We are where China was in per capita seven years ago. Questions were being asked whether we will grow at that pace but our growth models are different from China.
That's an optimistic view of the economy but if you see banks as a barometer, do you see a higher offtake of funding from the banking system?
We should see the overall capital-output ratio and what the growth is. In 2003-04, when the savings rate was 24 per cent, the question was whether we could grow at the same pace unless the savings rate improved. A correct question too. The savings rate did grow, and it is in the 34 per cent region now; I would think 8-9 per cent growth is sustainable without too much of a challenge. I believe we will track what's happened elsewhere in the world.
The last reforms happened several years ago; the government, as we can see, seems to be in a flip-flop over policy reforms.
The major reforms that were needed, from my point of view, have already been done. That is why we can see manufacturing can grow on its own. Manufacturers don't need so many approvals, they can import what they want, they can complete a project in 18 months or less. And that's true of large parts of the economy.
We are not a shortage economy. But what we require is clarification of rules. Rules that are amenable to growth without compromising on principles. So there is no confusion in the minds of those implementing a project. We can't have a system where, after everything is done, you say it can't be done. I'm saying, clarify those rules and steps to be taken. We have to address those constraints rather than look at reform.
What is your view for the year? Will inflation and interest rates temper, will the rupee stabilise?
It is too early to say anything, as the global markets are still settling down. Early signs are that it is a positive year. The US is growing faster than predicted. Europe seems to be solving its problems. In India if we can solve some of those infrastructure problems I see we can be on a fair wicket. China is under a bit of pressure, the rest of Asia is fine. If you look at the dashboard, it has clearly gone from amber towards green in the global context. Ours will probably go towards green. If the mood was backed up by complete stop in investment, then I would be worried. There is a slowdown. Not so much in the manufacturing sector. But borrowing money to put in infrastructure, especially where progress is uncertain, that has stopped.
It will soon be a year since you took charge as Chairman of Infosys. How has the Infy stint been? Have you set a change in direction?
For me, frankly, it has been a learning curve. Infosys is a very well-set company, where processes and practices have evolved with a lot of thought over 30 years. Changes were not too deep nor did they see wild swings. But they were steady, and if we look back over 10 years, suddenly, we find that reflected in the numbers.
For example, 10 years back, our core business would have been application development, which accounted for over 90 per cent of revenues. That is now probably around 40 per cent. As we move on, we have clearly articulated that we would like to work with customers to transform their businesses. We will measure it as we go along as to what extent we have been able to do that and by what indicators.
While Infy competes with Accenture in many domains, it's not there yet, nor is there any big-bang acquisition to pitchfork it into the big league. It's growing steadily. But how do you grow inorganically?
We can grow organically, but it will take longer and that growth is happening in the company. In the sphere of consulting it is clearly growing, but having said that, on the overall approach to acquisition, executive management has already articulated that we are looking at acquisitions. So, we will have to wait and watch for the outcomes.