India not competitive enough to attract capital: DLF Chairman

Analysts believe that only investment friendly countries will attract money going forward. DLF Chairman KP Singh too feels that money will go to only those countries, which investors find more friendly, more competitive. “To that extent, I find India is not becoming as competitive to attract capital as it was before,” he said while speaking to NDTV’s Prashant Nair at the World Economic Forum in Davos.

Singh also spoke in detail about the Indian real estate sector.” Real estate sector will see loan restructurings sometime in 2012. A lot of players won’t be able to make timely repayments and availability of financing for real estate companies will be a problem,” he added.

Below is the complete interview.

Prashant Nair: What kind of things and vibes are you picking up in the context of India?

KP Singh: Firstly. I don't think as media makes it to appear in India that things are going down or to governance model problem. I don't find this at all here. People are not concerned, not at all.

Prashant Nair: Is that because they have got bigger problems?

KP Singh: No, not at all. I think here as you will find this is the participants are of high caliber. They do recognise that in a democracy of nature like India, there is some time what you call collision compulsions. So the issue is whether India is moving in right direction? Speed may not be the same perhaps you like it to be. But surely it is moving and a transparency revolution that is going on India is good. At the end of the day, the issues are exaggerated by media.

Prashant Nair: In what sense?

KP Singh: Media is picking up those little issues, which are throwing big dimensions but not projecting what good is being done in the country. There are lots of good things that are being done in the country. India is growing, in my view it’s doing extremely well. Yes, there is no doubt slow in the process but if you see against the backdrop of the judicial intervention media, scams and all and the facts that the officers themselves gets scared. I didn’t find anyone here, who is concerned about India. Indeed there is lot of corruption, scams in India. The governance is slow.

However, China is the star attraction here, both Brazil and China. India has to see that they are competitive countries. It's not the way we are going. Money will go to only those countries, which investors find more friendly, more competitive. To that extent, I find India is not becoming as competitive to attract capital as it was before.

Prashant Nair: The West can actually afford to grow at 1-2 per cent because the living standard is very high but in India we can't afford to do that and that's the reason why a lot of focus is coming back to the core issue. Would you agree to that?

KP Singh: I definitely agree with that. There has to be a happy balance between monetary policies to deal with inflation. But it is important not to forget that India's bigger problem is to provide employment with teaming millions of young people and employment cannot be done without development and development is growth and growth cannot be done without money coming in. So, keeping GDP down with a view to keep inflation is a theoretical approach in my view.

India should be more concerned and the inflation has come down not because of monetary interventions. To a common man, food prices hit the most. But at the same time, if GDP goes down and you do not reach your full potential, then where are the jobs. You are aware perhaps that is the statistics now that by 2020 average age of Indian is 29 years, which means can you imagine average age 29 then. There will lot of young people around 20 years seeking jobs. Where are the jobs?

I do believe in due difference to the policy by the Reserve Bank and the government that they should now accelerate growth. I mean you got to have concentration of growth because the announcement the other day, the reserve bank has cut down the CRR that is not enough. It should have been bold. Cut interest rates also without giving these two impetuses. Market will not revive in the country so growth is the mantra in my view.

Prashant Nair: So you are routing for aggressive rate cuts by the RBI?

KP Singh: No, I won’t call it an aggressive rate cut. I will call it a gradual cut because unless you cut the rates, the growth will not take place, jobs will not be created which of the two is a problem? Young people standing in the line wanting the jobs and jobs are not there because there is no development. You think you control inflation because of monetary policy. It’s actually not because of that, it's an important instrument of monetary policies to keep inflation down but not the only thing you see.

Prashant Nair: But affordability in general is becoming a huge issue as far as realty is concerned. How do we solve that?

KP Singh: The only answer of affordability is when you flush the market with more supplies and how do you do that? This artificial control on floor area ratios (FARs), how much you can build in all the cities is completely our cake. When I heard the minister of foreign development Mr. Kamal Nath who brought around for the first time, I have heard that it is intensive use of land should have been the criteria of master planning. So if you restrict the growth naturally the demand in India is growing because people have become more prosperous, nothing can stop it.

People will become more and more prosperous. So unless you match the supply, I would say exceed the supply with demand. Secondly, interest costs and monetary and if you keep the interest cost high neither a prospective home owner is able to buy. Nor a developer is able to develop the building, the constructive building within prescribed cost. So a combination of material costs plus high interest rates is difficult to access money and the prospective home owners are unable to come forward and backed up by our cake. The FAR regulation is the reason why supply is not increasing. I hope that this will change and unless this changes, getting affordable houses within the reach of a common man is a pipe dream. I don't think it will happen.

Prashant Nair: Are we getting into a flash point sometime in 2012 which again will mean restructuring of loans. I mean the government stepping in that kind of thing or you think that's over exaggerating situation?

KP Singh: I think it's over exaggerating because of that function. In a real estate business, the debt incurred to buy land which is raw material is like a stock in trade, which is an investment. Like you do a factory, you buy raw material. Same thing goes into this thing. If you make this cost very high and monetary supply difficult what will happen is the input cost will be so high that people will be unable to market their product and that's other side. The demand has gone down because of these high interest rates. So what will happen people will are unable to I suppose meet their financial obligation of repaying the loan in time and I do hope that the government takes cognizance of this issue.

Prashant Nair: Do you foresee a problem in that regard? 

KP Singh: Well I don't foresee very severe problem but I foresee that most companies are going to find it difficult to stick to their repayment schedule. So you call it restructuring to enable those companies to remain afloat will be desirable objective.