Financial stability needed even if fiscal deficit rises: CII chief Kotak

Kotak also argued for focus on the digital and technology-oriented sectors, which will see resurgence in activity and jobs (Photo: Kamlesh Pednekar)
India needs to maintain financial and fiscal stability, even as fiscal deficit inevitably rises in the future amid shortfall in revenue and the need for more public spending, newly appointed president of the Confederation of Indian Industry (CII) Uday Kotak said on Thursday.

Terming India’s sovereign rating downgrade by Moody’s as a “warning shot”, Kotak said the government needs to maintain fiscal stability by boldly spending to mitigate the economic impact of the Covid-led crisis on individuals, businesses, and the financial sector.

Analysts estimate fiscal deficit to shoot up to 11.5 per cent of gross domestic product (GDP), up from 6.5 per cent before Covid-19 struck. The increase will be equivalent to a loss of Rs 10 trillion for the government, said Kotak.

"While ratings are a matter of opinion, what is contained in them is something we need to keep in mind, so that we don't have a sharp increase in cost of borrowing by Indians or Indian companies from the overseas markets, as also a sharp withdrawal of money, should there be significant drop in financial stability parameters," the banker said.

Kotak, managing director and CEO of Kotak Mahindra Bank, took over as CII president on Wednesday from Vikram Kirloskar.

On the issue of waiver of interest during the moratorium period, the CII president said Kotak said banks have an obligation to serve depositors, both on principal and interest, even when borrowers get moratorium.

"Banks are intermediaries between depositors and borrowers. So, we (cannot) have a situation where borrowers get moratorium, banks have an obligation to serve depositors both on principal plus interest. Therefore, we cannot have a one-sided contract where we allow moratoriums on interest to the borrowing side," said Kotak.

In a departure from established practice, the CII president did not release GDP growth estimates for the current year, arguing that the impact of the pandemic is still being understood.

”It is fair to reasonably presume that in the current year, considering we had a long lockdown, the estimates on the negative side may have veracity. There may be some negative growth for the year”, he said.

Kotak also argued for focus on the digital and technology-oriented sectors, which will see resurgence in activity and jobs.


The ongoing Covid-19 crisis has shaped CII's overall objectives for the year, he said. The chamber has sought to push for protection of lives and livelihood, increasing public spending on health and education, and environmental sustainability in 2020-21, above and beyond economic interests.

Kotak stressed that the Prime Minister's call for self-reliance is a necessity, but this would need to be based on quality and competitiveness of India's products, and not on protectionism.

By extension, Kotak said India should be open to trade with China - a major global power - yet remain strong on issues like dumping of excess Chinese capacity.

He invited Corporate India to raise capital without fussing over ”nickels and dimes”; and better manage risk, given the stock market has recovered substantially from the lows it fell to in late March.

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