Aatmanirbhar Bharat needs Aatmanirbhar banking sector: CII's Sanjiv Bajaj

In a Q&A, the president of the industry body dwells on how a cut in fuel duties will spur demand, and the impact of interest rate regime on India's FY23 GDP growth

Bajaj Finserv’s Sanjiv Bajaj, the new President of Confederation of Indian Industries, batted for allowing corporates into the banking sector. Talking on a range of issues with Nikunj Ohri and Arup Roychoudhury, Bajaj said that cutting petrol and diesel duties will spur consumption and demand, and how the interest rate regime goes from here will determine India's FY23 GDP growth. He said that inflation will continue to hurt margins of companies. However, that will not disrupt private sector capex revival which is getting stronger. Edited excerpts:

Mr Bajaj, CII has given a range of GDP estimates for FY23 based on three oil price scenarios. In this scenario of 7.4-8.2 percent, do you think growth may be closer to the upper end or lower end?

If you can tell me where oil is going to be I can tell you what GDP growth rate. If it stays around $100 level, then I think closer to 8 percent is what we can look at. Because see there are things we can tweak as well. While the interest cycle is changed now, what is the amount of interest rate that will go up and how much how often it happens will also depend on how inflation is on the ground. Inflation is partly dependant on fuel prices. And our suggestion is that in a collaborative manner between the center and the states, for the government to cut taxes right now on fuel. So, it helps the pocket of the common man. We are also hopeful for a normal monsoon. So, all this help consumption to continue to grow, and remember we are still a consumption economy. So I believe that we will see reasonably good growth.

To what extent is inflation impacting margins?

While it differs from sector to sector, but corporates’ margins have partly got compressed, if you see the last quarter or two, because input costs had started going up. That's why you're seeing some amount of passing of that happening to customers. And that's why inflation is also picking up. So you will see some more of that happening and it varies a lot sector to sector.

Do you think corporates should be allowed to participate in bank privatisation process?

As India is going to grow, we need a larger, stronger, deeper financial services sector which will include banks, insurance companies, asset managers, and it is for the regulators to decide what is the right way to do that.

To build an Atmanirbhar Bharat, we first need an Atmanirbhar financial services industry. RBI already has a definition of who they would allow or to not allow (to own banks). I feel good quality players should be allowed. We are seeing many strong NBFCs that have built good capabilities over the long term and have shown their resilience and they could be encouraged to move towards a bank license.

On the other hand, what is equally important is for RBI to build a discussion around what the future of lending looks like. We're seeing the digital world create significant disruption and disintegration over what were traditional methods of providing such services. A discussion on that is very timely to help entities decide what kind of route they want to follow for the future.

There have been hiccups in the existing privatisation process of PSUs such as Central Electronics and Pawan Hans. Do you think the screening process should be made rigourous?

We will need a transparent, clear well thought out consistent process that needs to be maintained, there still may be some gaps which will need to be corrected. I believe the intent of the government that it should not be in business. There are many sensitivities that are involved, so some of these things take time

Post FDI hike in insurance, do you think more needs to be to attract foreign capital in the sector?

We still don't have a domestic financial sector that is strong enough to support India’s growth opportunity. We have to also be cognizant of the fact as we've seen in the last six months, that foreign capital especially will find the best risk reward geography over a period of time. Capital may go out as well but it has to have substitute by creating a strong domestic financial services industry, led by banking, asset management, insurance and pension. We need a holsitic view across all of these to be taken by the government and the regulators so that we continue to strengthen these sectors.

What more financial sector reforms need to be undertaken in India?

We need to expand banking to increase financial inclusion. We have to take banking closer to people, digital tools can make a very significant benefit. We need to provide capital to small and medium scale enterprises. With the government signing FTAs, we need to ensure capital is easily available to companies. India needs few large banks to strategically help large companies that have built necessary capabilities to become not only the manufacturing hub for the world, but are now looking to built new capacites overseas. Every large successful countries has had a few solid banks that know their companies and understand the risks, and support their aspirations.

As Insurance sector has gathered a large amount of assets, we need to look at how these assets can be used to fund startups, infrastructure projects, and a strong viable corporate bond market in India.

Exporters and trade has been impacted by ongoing Russia-Ukraine war, what should the government do?

Some of these are bilateral issues that need to be resolved. Wherever possible, the government is working on Rupee trade that will help in clearing payments. In any such situation there are short term impacts which need to be dealt bilaterally but they also open up long term opportunities.

What is your view on the employment situation currently? As per many reports, millions have dropped out of the workforce.

We have to keep in mind that that current situation really was driven by the pandemic. And that's why especially a large number of semi formal or informal urban jobs shut down for an extended period of time and people went back to rural India. And it takes time for people to come back. So we have to see what we can do to attract them to come back. If you look at salary jobs, hardly any salaried jobs went down and are starting to go up. One of our suggestions to the government is to create PLI schemes for labor intensive sectors and employment linked incentive schemex. So when you look at some of the sectors like leather, like footwear, when you look at tourism, these can be huge employment sectors.

The revival of private sector capex had slowly started happening. To what extent can it be impacted by the inflationary pressures which margins are facing?

What has happened in the last few years is we did not go through a cycle of large private investment, because of the pandemic and the lockdown. So capacity utilization has been inching up. Where inflation is right now, you may see some small reduction in demand. But at this stage, we're not seeing anything very significant. And that's why I think overall capital utilization is north of 70 percent. There are multiple sectors which have already started investing. Our last business survey with our national council members, if I remember right, nearly 50 percent plus member said that they were already investing and have started investing.