India should kick-start private investment via policy measures or tax breaks if it does not want to stay stuck at a 7 percent growth rate, Uday Kotak, managing director and chief executive of Kotak Mahindra BankNSE -0.24 % Ltd, told CNBCTV18 in an interview.
“India has the fundamental capacity and we need to create a situation where the ground capacity will be growing at somewhere between 8 and 9 percent,” he said on the sidelines of an event organised by Kotak Mahindra Bank Ltd.
The Reserve Bank of India earlier in the month moderated its growth forecast to 7.2-7.4 percent for the April-September period, after economic growth in the country fell to a worse-than-expected 7.1 percent in the July-September quarter.
“We have got to really fix that piece because the key is private investment,” Kotak said, late on Thursday in the interview.
Sluggish private investment growth is a blot on the five-year rule of Prime Minister Narendra Modi, whose ruling Bharatiya Janata Party is often seen as pro-industry.
Modi’s decision in November 2016 to suddenly ban large banknotes, so-called demonetisation, and the abrupt implementation of goods and services tax (GST) six months later, hit businesses hard.
The infrastructureNSE 0.34 % logjam that has occurred due to a lack of liquidity in the system, also needs to be removed, said Kotak, whom the government hand-picked to lead major infrastructure financing and construction firm IL&FS after a string of defaults from the firm triggered fears of a liquidity crisis in the non-banking financial company (NBFC) sector..
The IL&FS imbroglio dried up lending from NBFCs at a time when private companies were already dealing with reluctant banks wary of lending due to their massive bad debt woes.
Kotak said that due to the IL&FS debacle, the current situation was fragile, but he added that it was more due to investor fears than a systemic problem.