The Budget bet over a possible rural push and revival of the private investment cycle is on. Speaking to Bloomberg TV India , Shriram Transport Finance Managing dDirector and CEO Umesh Revankar blames the fall in rural demand as one of the main reasons for the subdued investment activity. Lowering the government’s stake in state-owned lenders will send a strong signal, he said.

What’s your assessment for the economy going forward into the Budget?

My assessment is the urban economy is doing quite well, but the rural economy is facing some challenges. The challenges are mainly due to deficient rainfall, lower wages and food inflation, which probably will take some time to correct. Otherwise, the latest push from the Central government and some State governments on various economic activity measures, such as infrastructure, is really trying to boost the economic activity. I feel the essence of better days ahead before the Budget.

The private sector hasn’t really managed to pick up the kind of interest and growth we were hoping it would. What in your opinion is keeping it muted?

The private sector is facing the biggest challenge. Right now, much of the manufacturing activity is towards consumption within India and some towards exports. The export market has fallen by around 24-30 per cent on a year-on-year basis. Since most of the oil-producing countries and Europe are not doing well, the possibility of Indian exports increasing is dim and it is actually decreasing. Secondly, the consumption in India, if you look at FMCG products or wo-wheelers and tractors, are dependent on the rural market. After 2010, most of the growth happened in the rural market especially in consumption. In the last two years, the pressure on rural India has increased as rural income has not been growing, the agricultural producers have not increased prices, rural wages have not increased and the demand for consumption in the rural area is falling. Unlike in the urban areas, where people do not reduce consumption, in rural areas, the moment the income falls below a particular level, they have to stop consuming. So, whether you take electronic goods or any other FMCG or day-to-day consumption items or even protein items, consumption has been coming down. So, the scope for anyone to invest in India is not there because the installed capacity is already high. The only thing that can come into India is high technology as in defence or infrastructure. In infrastructure, many of the companies are highly leveraged and are finding it difficult to come back. Even though the government has started giving a lot of push to infrastructure activity, many local infra companies are not able to take advantage of these situations because of past issues, which need to be addressed; some are getting addressed and some reactivated. So, it may take some time for the infrastructure companies to come back fully into activity. I feel these are the situationswhich are making things challenging for the private sector to participate fully in the growth story.

The stress in the financial system is very high and that’s keeping both the market and policymakers on tenterhooks. How crucial is the turnaround going to be for the banking and the NBFC sectors?

Public sector banks have been playing a key role in infrastructure and manufacturing activities. So far, their role is very critical for reviving the sectors. The public sector banks need to get strengthened so that they feel confident about further participating in enhancing credit growth. In the Budget, we may hear certain positive points on public sector banks and the measures required to boost the confidence of the people involved in and around the financial sector. We really have to wait and see what the government wants to do to help and strengthen the financial sector.

The RBI has stepped in to help banks win the NPA battle and the Supreme Court has now come out to address the issue. What do you think the government should do in the Budget when it comes to addressing the issues that are plaguing public sector banks?

The government has to come out with a very clear view on the future course of planning for public sector banks. The government can capitalise the banks sufficiently, but also have to give a long-term direction. Will the government lose its holding and make the banks more professional? Or, will they merge some of the smaller banks so the government can manage them better? I also read the Finance Minister’s statement that he would like to reduce the government’s holding to around 51 per cent. I think that’s the first positive message he has given and that should be the direction of the Budget.

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