India needs to be ready for tough times: Uday Kotak

New Delhi: India needs to be ready for 'tough times' because the country has not yet felt the impact of the Middle East war on energy prices, according to according to Uday Kotak, founder and director of Kotak Mahindra Bank. The country has also to start visualising the possibility of a structural change in the world order that has largely remained stable for the past eight decades, he said.

"We have not seen the impact in the last two months of the Middle East war in terms of energy price transmission. It is coming and it is coming big," he said at CII's annual business summit on Tuesday.

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Consumers have "not felt the pressure at all", he said. "Think of a consumer who has to spend directly on fuel and indirectly on other items that are dependent on fuel," he said.

Kotak said India was using the advantage of having oil inventories up until now. "Oil companies have been shock absorbers. We are not far away from the shock unless the Iran war stops tomorrow morning," Kotak said.

Kotak also said India's current account deficit could enlarge significantly if oil prices trend northward of $100 per barrel. "With oil prices averaging at $60-70 per barrel we had a current account deficit of $45 billion. With oil at $100 a barrel, the current account deficit will go to $100 billion. That's 2.5% of GDP," he said.

Warning that the world was moving towards "tribalism", a phenomenon last witnessed in the pre-World War II era, he said India must start preparing for a structural change in the world order which has largely been stable in the past eighty years as periods of upheaval have eventually resulted into what he termed a "reversion to mean".

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"The tribal mindset of pre-1945 is coming. It is about territory, ownership, seeking rent from assets. Tangible and intangible assets of the world are getting concentrated in a few hands,' said Kotak.

He questioned whether India was prepared for such a scenario. "This will require strong control of assets, strong balance sheet of a country, ability to generate revenue by the country through its resources or its companies," he said.

Pointing to the example of the US, he said that country had moved away from its dependence on oil from the Middle East over the last 50 years. "USA's strength is its ability to produce products and services that the world consumes," he said. "The businesses of that country fixed the energy dependence." He urged India to look at the example of China and the major strides it made in the adoption of electric vehicles to curb the use of fuels.

"Energy-we have to fix it. We won't find it easy to produce more oil. I was in China. Sixty percent of all cars in China are electric. In India, it is 3%," he said.

Kotak, a Padma Bhushan recipient, drew references to the Hindu pantheon of gods-Brahma, Vishnu and Mahesh-each of whom has earmarked roles as creator, preserver and destroyer to bolster his argument about a need for change in India's approach.

"We are in a country where we try to protect things. We need a combination of Brahma and Mahesh. If there is too much Vishnu in the total...what we need is creator and destroyer much more in the mix. We need to significantly increase Brahma and Mahesh quotient," he said alluding to a sense of complacency that had prevented Indian companies from taking risks and urged that we move towards creation and creative destruction to come up with our own products and services. "Large number of companies are thinking quarter se quarter tak. Mindset to take a three- to five-year view is missing," he said.

"We need to produce, otherwise there will be a time when it will be difficult to buy," he said, urging Indian companies to reinvest their profits. "India has a great corporate tax rate. Are we reinvesting or running corporate treasuries," he asked quizzically.