Borrow More To Revive Growth But Be Wary Of ‘Laxman Rekha’, Says Uday Kotak

Billionaire banker Uday Kotak has said that the central and state governments need to borrow more and prop up a Covid-pinched economy, but they need to be mindful of their limits.

“The size of our combined fiscal deficit of states and centre is a challenge. It was already high before the pandemic and now it will only worsen,” Kotak, president of the Confederation of Indian Industry, told Quintillion Media’s Sanjay Pugalia in an interview.

“My assumption is that our combined fiscal deficit is at least 12-13% right now. Based on the need for further stimulus, I think the ‘Laxman Rekha’ for fiscal deficit is around 15%. We need to tread carefully while crossing that,” he said.

The Indian government was widely expected to increase its market borrowing beyond the budgeted Rs 12 lakh crore to lift the economy that contracted 23.9% in the April-June quarter. Still, the government chose to stick with its borrowing target saying that it has already factored in the need for a fiscal stimulus.

Kotak said that given the circumstances, it is inevitable that India’s fiscal deficit will breach the 15%-mark. “We need it and we should do it because it is a matter of survival.”

That said, authorities should keep in mind that the additional borrowing cannot come without any strings attached.

He remains firm that all of this extra borrowing must be used to aid the weakest section of the society and get them spending again. “This extra borrowing should be used as a stimulus to create demand at the bottom of the pyramid. The demand has to come from the bottom,” he said.

Kotak, who is also the managing director of Kotak Mahindra Bank Ltd., also said that the industry is hopeful that the government will provide some support for a festive push in the upcoming months.

Watch | Uday Kotak’s full interview with Sanjay Pugalia on Rajpath here.