The Hindu Business Line : Economic growth may be underestimated, says Kamath

(L to R) Mr K. M. Mammen, Chairman and Managing Director, MRF, Mr N. Sankar, Chairman, Sanmar group, Mr A. Sivasailam, Chairman, Amalgamations group, Mr K. Mahesh, Chairman and Managing Director, Sundaram Brake Linings, Mr N. Vaghul, Chairman of ICICI Bank, at the 10th Anniversary celebrations of The Hindu Business Line in Chennai on Tuesday. — Bijoy Ghosh

Chennai , March 23

INDIA'S economic growth is perhaps underestimated because the index used to measure it has not been fine-tuned to capture the increasing importance of industries such as consumer durables and electronics, according to Mr K.V. Kamath, Chairman & CEO, ICICI Bank.

Addressing the 10th anniversary celebrations of The Hindu Business Line here today, Mr Kamath was optimistic about the economy's prospects following a sense of self-confidence felt by the industry. He traced the current situation to improvements made in shop floors in the recent past. The improvements had set in a motion a chain of events that led to more efficient use of working capital, and thereby raising competitiveness. Softening interest rates over the last few years also helped the process, he added.

Mr Kamath said the result of the positive changes could show up in the form of a credit demand next year of over Rs 2 lakh crore from the manufacturing sector and consumers.

Mr R. Seshasayee, Managing Director of Ashok Leyland, echoed Mr Kamath's views on the sense of confidence felt by Indian industry. He felt last decade had been a "glorious decade" for business in India.

Mr Seshasayee, however, expressed concern about agriculture because it was lagging behind other sectors. He termed agriculture's small contribution to the economy despite absorbing the largest share of the population a "fatal flaw in the economic development of the country."

Mr Kamath, who offered a banker's perspective on the rural sector, said it presented opportunities. To tap them, ICICI Bank had begun to use intermediaries who could deliver rural credit at low cost. Subsequently, the bank had put together the loans given by intermediaries and raised money by securitising them.

The softening interest rates also gave banks a chance to profit from trading in debt securities, and use it clean their balance sheets said Mr Kamath. The result was that Indian banking system was healthier than the Chinese one, he stated.

Cost and technology were overriding issues for banking sector, said Mr Kamath. He said that rural needs had to be addressed to register growth, but that was not possible at "western cost."

He identified the need to constantly acquire skills to "re-invent" oneself as another challenge confronting banks. He felt the business was characterised by a 3-year cycle, and banks that could not adopt would become obsolete.

Examining the decade's changes at a macro level, Mr Seshasayee said the planned economy model had been given a quiet burial. Simultaneously, the country had built institutions to protect market structures.

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