Uday Kotak Says India Cannot Afford Protectionism; May Need To Rebalance Its Trade #IndiaFinance

India has to take advantage of changing times and make the domestic industry competitive as it cannot afford protectionism, Kotak Mahindra Bank Founder Uday Kotak has said.

“The new world will give limited options to run large current account deficits. He (Uday Kotak) emphasized the need for India to improve productivity, avoid excessive protectionism and increase manufacturing as a percentage of GDP,” said a Kotak Institutional Equities report.

After resigning from his position as the Chief Executive Officer of the bank in September 2023, Kotak continues to remain on the board as non-executive director.

He also said that India’s current account is well under control at 1.2-1.3% of GDP, which is $50 billion of deficit. India currently has a roughly $40 billion of trade surplus with the US.

“Kotak believes that President Trump’s intent to correct US trade deficit with India may put an additional load on India’s CAD. India’s trade structure may thus need to change across economies to rebalance its trade,” the report said.

Tariffs will become another important issue, with India imposing around 10% tariffs on US goods and the US imposing 3% tariffs on Indian goods.

As tariffs hit other producing nations, they will have surplus capacity to sell to the rest of the world at a much cheaper rate. If any of the commodities from surplus production countries are 30-40% cheaper than India, Kotak questioned what India’s strategy should be.

Apart from tariffs, he also emphasised on the importance of execution in both macro- and microeconomic policies.

India will need to go through a gradual fiscal consolidation and it needs to move from micro-management and over-regulation towards ushering growth and competition, according to Kotak.

“India must ensure free and fair markets at all points in time, and tremendous progress has been made toward it. He (Kotak) cited that Indian markets are resilient and at scale for foreign investors to move in and out,” the report said.

On the recent tax rebate provided to individuals, Kotak, as per the report, believes that the move makes deposit-taking industries more competitive. However, while the liability side looks to be improving, the Goldilocks era on the asset side appears to be over. Some signs of that are appearing in micro-finance and unsecured sectors.

Even as we move into a challenging credit cycle, the financial sector, irrespective of the attempted protection, may see “accidents”, mentions the report, quoting Kotak.