In the ninth edition of Emerging India Awards, Chanda Kochhar, MD & CEO, ICICI Bank joins in with CNBC-TV18 for a special conversation transcribed below:
Q: It is that time of the year when we have our conversation about where small and medium enterprises (SMEs) in India stand today but it is a very different context. It has been a difficult year as far as the macro economy is concerned. How hard is it going to be to find India's best SMEs?
A: You can always find best SMEs but what we are going to look for this year is the ability of those SMEs to find their resilience in this economic environment because if you look at the environment today, I think the SMEs are going through multiple challenges.
The issue of elongated working cycles, the issue of increased cost, the issue of reduced profitability and having to face a volatile environment. What we will look for is how have the SMEs been able to adjust their business models to find those efficiencies in their operations.
Q: In comparison to the big guys, lending rates have been 15-16 percent. As far as the SMEs are concerned, has it been tougher for the smaller players in the business?
A: It is always the fact that the smaller players face the change in a more extreme manner whether upside or downsides. So, yes, the interest rates impact them. When the interest rates are combined with elongated working cycles, it impacts them even more as see liquidity around the system is tight payment cycles are getting stretched.
So, yes, it has indeed been tough but I must say to the credit of the SMEs in India that in this tough environment, they have worked towards finding better and better business models and finding operational efficiencies.
Q: What is the one thing that you noticed in the SMEs post 2008, let us not talk about what we have seen happening in the last 12-24 months, but 2008 when the crises in a sense in the global financial world started, what are the differences that you are seeing in the way that SMEs are addressing some of these challenges?
A: Two major differences - one is that they are actually willing to look at their operational models almost from a zero base, so not just looking at minor improvements and minor tinkling here or there but actually seeing how can they rechange their internal processes entirely and bring out more efficiencies. The other thing that I have seen is that they are going out there and looking for new markets, newer markets within India that is penetrating India more and more, newer markets outside of India and seeking those opportunities.
Q: Is that by way of partnerships, is it through merger and acquisition (M&A) because we have seen a lot of M&A activity take place even as far as the Indian SME sector is concerned. What is the trend that you are observing?
A: Yes, indeed it is partly M&As but much larger partnerships, they collaborate not just horizontally but even vertically. So, working very closely with the large corporates that they deal with and working across the value chain to create that value across the entire supply chain.
Q: As far as the economy is concerned, the fortunes of the SME sector in a sense are directly linked to the fortunes of the Indian economy. It has been the second successive year of an under 5 percent Gross domestic product (GDP) growth. We can quibble about whether it will be 5-5.3 or 5.5; the point is that at this point in time the headwinds continue to be fairly rough. What is your sense about the economy, are you seeing any indications of green shoots, are you seeing any indications of a recovery or a revival at this point in time?
A: I think the biggest issue that we are facing today is lack of investments taking place or newer investments taking place and that is the result of the fact that decisions are not taking place, in the sense that the projects that have been implemented, almost completed implementation, half implemented are yet not seeing cash flows being generated and that is because speedy approvals are not coming in.
Q: Has the Cabinet Committee on Investment (CCI) not made any significant difference because we get to hear from ground that at least as far as some of the large infrastructure projects are concerned with the CCI coming into the picture, it has made a difference but you are not seeing that today?
A: I can again put that in context. So, indeed CCI is moving, decisions are taking place but finally what happens is that if a project needs ten approvals then only nine approvals don't help. The tenth approval has to also come in for the project to start generating cash flows and some times some approvals come at the central level but then they again get stuck at the state level and so on or you have the power project that is complete but you haven't got your approvals for mines.
So it doesn't matter even if you say that my power project is complete because I cannot operate if I don't have the mines. So while decisions are taking place, we have not yet seen the full impact in a very comprehensive manner on many projects. So indeed it is a fact that a lot of investment is put on the ground but not generating cash flows and that is creating the kind of financial impact or liquidity impact in the economy. But on the other hand I must say that there are something's that are actually moving in a good direction. A positive for our economy in the last few months has really been the way the current account deficit (CAD) has turned around. The capital flows that have come in, the way imports have gone down.
Q: So do you believe we are less vulnerable today as far as things like the CAD is concerned even on the fiscal deficit, the finance minister has made it absolutely clear it will be 4.8 and he is not going to allow that red line to be breached in any fashion. Are we less vulnerable today to external shocks for instance the Quantitative Easing (QE) taper?
A: I think the CAD and the way the capital flows have come in have provided that some kind of buffer in that direction for us. As you rightly said fiscal deficit, it seems to be almost very clear that we will be on target. The other positive is that agriculture is actually doing better now. Export sector is doing better now so these are the positives that have emerged. The whole QE impact we will have to actually watch, it will bring about volatility in the financial markets and it can have some impact of and on on India as well.
But my belief is that QE tightening or not, I think our final solution lies in our own domestic growth. Just view it in this context that two-three years ago when the developed economies were struggling to grow at even 1 percent, we were growing at 9 percent. We had an 8 percent differential compared to the developed economies. Today we are struggling to get to 5 percent and the developed economies are talking of getting back to 3 percent. So where is the growth differential, there is hardly any growth differential. We have to actually focus on taking our domestic growth to much higher levels and if we do that then even if there are a few lesser dollars in the global economy we will get flows coming into India.
For full interview, watch the video
