By Mohammed Siddique, TwoCircles.net,
Hyderabad : There is a good news for Indian economy from one of its own leading lights- KV Kamath, the president of Confederation of Indian Industry – country’s economy will continue to grow at eight and a half to nine per cent despite the challenge of inflation. Kamath, who was in Hyderabad to attend the CII National Council meeting from tomorrow, told the media in Hyderabad that he was quite optimistic about the growth story remaining intact because the investment pipeline of $ 700 billion over the next three years was intact and the other fundamentals of Indian economy were also strong.
“Intent to invest (in India) is intact and to me that is a good news in a whole lot of bad news”, he said.
“India has a pipeline of $ 700 billion dollar investment. That pipeline is intact and it is happening as we talk”, he said. The problems at the international level are unlikely to have any impact on this pipeline as 70% of this investment was coming from the Indian corporate from their free cash flow and profit, he said.
The investment was going in to infrastructure as well as manufacturing sectors, he said. “This investment will remain on track because unlike in the past large part of these projects are being funded by corporate free cash flows profitability and we are seeing that probably 70% of these projects are funded by free cash flow. That is why corporate can invest themselves and grow rather have to rely on outside sources, global or from India to finance these projects”, he said.
Kamat was of the view that there will be risk to this investment pipeline only if the corporate profitability drops dramatically and so far there was no indication of such a drop despite challenge. “Up to the last quarter ending March 2008, corporate performance was in a very good shape. Large number of companies have over 100% growth in sales and net worth”, Kamath said.
About the investments in the pipeline he said, “These are the hard projects that Indian entrepreneurs or the people investing in to India have, which are now on the front burner and are in the implementation mode”. Asked about the potential flow of foreign investments, he said that Indian companies were the major drivers and who ever wants to invest in India will have to do it along with the Indian partners in to equity or debt.
Talking about the challenges and risks facing the Indian economy and industry, Kamath said that inflation continues to be the number one challenge as 12% inflation does not augur will and it will have pressure on various parts of the enough. He described it as a global imported inflation pointing out that it was linked to high oil prices. He however was happy over the drop of ten dollars a barrel in the oil prices today, the biggest one day fall in the recent times.
Oil price, raising commodity and consumer prices, and balance of payment to the current account deficit were some of the pressure the country will have to contend with. Noting that the rupee had got weaker in the last few weeks, he said the challenge was how does India balance inflation versus growth.
He said infrastructure bottlenecks were endemic across the country but they are being removed.
Talking of the strong fundamentals of Indian economy, he said that savings rate was more than 35%, incremental capital ratio was four (better than China), domestic consumption at 67% of GDP, exports growth at more than 20% and strong fiscal performance.
On the expectations of the economy, Kamath said that 73% members of the CII expect increase in production underscoring a positive mind sent. 63% of exporters believe exports will continue to increase and the over all assessment was that despite all the challenges growth will remain at 8% in medium term.
He said a 10% growth in the service sector alone will guarantee 6% GDP growth and no IT company was saying its growth will be less than 10%.
He also urged the need for India engaging with the neighboring countries including ASEAN block and South Asian countries like Pakistan and Bangladesh. He described Africa as the next growth horizon after China and India. Accordingly CII is going to set up its offices in African capitals like Addis Ababa, Kinshasa and Johannesburg.
When asked whether the CII will set up its offices in Pakistan and Bangladesh, Kamath said that there was no immediate plans because CII will first would like to learn the ethos of those countries.