Let me put my views in context without looking at figures put out by others. I maintain that a deep structural reform is taking place in the growth scenario. This has happened in most transforming economies — Japan, the tiger economies and China.

I think it’s now our turn. It really started in 2005. It’s after a lot of underpinning work that was done, we liberalised, opened our economy... India Inc has put the efficiency factor into structural changes. Leading up to 2005, companies got their processes, cost and efficiency right. There has been a lot of work done by the industry to come to this stage of preparedness.

At the same time, something that has not happened elsewhere in the world has happened in India. The services sector blossomed ahead of the manufacturing sector. Globally, it happens the other way round…. first you grow through the industrialisation route and thereafter through services. In India, because of the knowledge revolution, services grew faster than the industry. Almost 60 per cent of the economy was growing at 10 per cent.

We also have large industrial investment taking place. In the history of India, we have not seen this kind of growth. The maximum we have seen is $50 to $60-billion investment. Now, we are talking of 3-4 times this — around $250 billion.

But, can we sustain this growth rate? We seem to be hitting a constraint in terms of our domestic policies.

Now why will this growth rate be sustained over a long period? You get into a psyche of growth that is difficult to break. Take a situation where several billions of dollars are being invested. I am not seeing any slowdown in that. When investment takes place, it produces goods and adds to economic growth.

Going forward, in the next 15-20 years, investment that has happened is going to spawn growth. That is what you call growth magic — which happened in Japan and the tiger economies, or China now. We are just jumping on to that cycle. That’s why we believe that we have started a cycle of 15 to 20-years’ growth. There can be small aberrations because of the global situation. I think it will be difficult for us to slow down below 8 per cent because we have unleashed the energy.

But do corporates have the money to fund such huge investment plans?

Today, corporate profitability will fund roughly two-third of this. I would have been worried if I had seen a corporate slowdown happening. In fact, I was expecting some slowdown. Corporate profits have not slowed down to a stage where funding of growth has been constrained. At least sitting in this room I have not even had one customer come to me in the last eight months and say that my profitability has come down so I may not get funds for the project. It basically means that 60-70 per cent of funding is taking place from their resources. Go back 10 years, 85 per cent of funding was through debt. You got 15-20 per cent promoters contribution that was either equity or cash. Contrast this to now where 70 per cent is their resources.

When do you see a reversal in the inflation trend?

To me, inflation in the current context is an imported phenomenon. It has to be addressed. It is consequential to commodity price increases led by oil and metals. If I had not seen mitigation happening I would have been concerned. But global commodity prices, including food prices, are dropping . Domestically, we seem to have an adequate monsoon. If that is so, the next year should be dramatic. I think all signals for inflation abatement are already visible.

And interest rates?

It has to go hand-in-hand with watching for inflationary signals. One-year money in the system costs 11 per cent. You add systemic carry cost of 2 per cent and the cost of money is 13 per cent. The practical lending rate in the system is 15 per cent today. I don’t think it can be sustainable in the long run by any yardstick. Reversal will happen when in the policy context, you see inflation abating. It has already stared with oil prices being where it is today, commodity prices correcting and food supply easing.

But higher interest rates, growing EMIs and high inflation seem to have dealt a blow to consumer confidence.

We are seeing the impact of two things in one area of consumer spending because of which growth in consumer items probably has flattened out… probably slightly negative if I include housing. The reason is the multi-fold impact we are seeing there. I think one is clearly the impact of increased property rates. It has multiplied 2-3 times in the last three years. So, affordability has taken a hit. Second is that interest rates have gone up, again impairing affordability. Third is that if I have other loans for other purposes… all have gone up to higher rates.

The urge to buy, to want or own, is still there, but affordability has become a stumbling block. This happened in all economies. Up to 2003, we had a serious affordability issue. How did this get corrected post 2000? On two fronts — one, interest rates fell; two, mortgage rates that were 14-15 per cent in 1999 fell to 7.5 per cent and affordability improved dramatically. Also, systemic supply increased.

What kind of correction do you see in realty prices?

Who ever I have talked to in the realty sector is not expecting a huge correction. My own assessment is there could be 20-25 per cent correction in property prices. It has already started. In one way or the other, it’s passed on to the consumers. But consumers are waiting and watching.

How is industry coping with rising input costs, with inflation in general?

Ten years ago, the industry would have thrown up their hands and said, “we can’t compete”. But now they ask “how can we compete?”. They will change strategy every time something goes wrong. Inflation at 12 per cent is a tremendous opportunity.

I know it is hurting many. But the response has been amazing. This is also the time Chinese companies’ cost curve is increasing. Our newborn competitiveness is the new paradigm. To me, this is the silver lining.