Portugal is a very good base for Indian businesses in EU: Naushad Forbes

The general impact would be very modest because the bulk of Indian growth comes from domestic consumption. However, there are several Indian firms that have significant investments in the UK and some of those firms have invested not only to sell in UK but also to sell in the EU and those firms would be affected. Now, the impact would depend on the terms of Brexit arrangement such as under what terms will UK trade with EU and that is an unknown. I think that only when that gets known, will the firms be able to decide on whether they should remain only in UK or should they also have a base somewhere else, such as Portugal.

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Portugal seems to be pitching for Indian companies to set up their base in Portugal as it has a treaty both with the UK and the EU. How feasible is that?

It’s a good argument. Portugal has three historical trading relationships — with Britain, the EU and with its ex-colonies. While Portugal has the oldest relationship with Britain, now that old relationship has been replaced by the EU relationship and we don’t know what the Portuguese-British relationship will be after Britain exits the EU. So, a lot will depend on what that is. While Portugal is keen on having a special relationship with Britain, I am sure Britain would like it too, but whether they will be allowed after Brexit is something that no one knows. Portugal also has good relationships with many of its ex-colonies such as Brazil, and many countries in Africa and that relationship is useful for India to tap into. So in that sense Portugal is a very good base for Indian businesses to have in the EU.

How do you see the economy shaping up and what will be the impact of implementation of Pay Commission recommendation?

The economy continues to improve and there are signs of pick-up. If monsoons are normal it will only make the rural recovery robust. I think that if demand picks up then by the end of this year we may see the investment cycle also turning.

Pay Commission in the short-run is a good news and bad news in the long-run. While it will feed consumption growth and show up in the GDP growth numbers in the short-term, the bad news is that if you have pay increases without productivity increase, it will feed inflation and if that happens then we won’t have rate cuts. I think pay increase without productivity increase is a dangerous thing whether it is in a firm or a country.

In the past you had said that interest rates need to come down more. Do you see more rate cuts coming?

If inflation stays in control then I think we can expect rates to come down modestly. I don’t think anyone is looking at a dramatic drop in interest rates. It will keep happening in the same way even with a new governor. The key question now is that the spreads are quite high for banks as they passed only about half of the 150 bps cut in repo rates. So the ball is in the banks’ court.

Governor Rajan had initiated cleansing of books of public sector banks. Is the industry happy with the developments?

We fully supported the process and we were glad that RBI was placing that pressure on banks to address NPAs, recognise them in their books and then move on. I think the right trends have started and I am told by RBI that banks have gone further than what the RBI demanded. RBI sought a certain amount of cleansing and the banks have gone ahead of that. Having addressed the NPA problem, the banks need to get back into the business of lending.