AM Naik, the group executive chairman of India's largest engineering and construction company Larsen and Toubro has joined the chorus for a cut in interest rates. In an exclusive chat with ET NOW, Mr Naik says that despite the reform measures unleashed by the Narendra Modi government, the capital goods sector is yet to see any revival in demand and the need of the hour is for the central bank to cut interest rates by at least 1%. Edited excerpts:



How do you perceive the demand situation on the ground....are you seeing fresh green shoots in the economy?



It is still too early...But the fact is every other week, there are some policy decisions being taken in the right direction and they are all pending implementation for many years and at-least they are getting cleared one by one. Demand in the auto sector and two-wheeler sector has picked up a little but I think the hard core capital intensive sectors like infra, power , heavy industries are yet too see a pickup in demand. But that's not due to the demand situation alone .These sectors need billions and billions of dollars and i think the question we need to ask ourselves is where is the money coming from with all the constraints in various segments?



The private sector does not have money of this magnitude.And unless the policies are extremely friendly.. to an extent that you can give guaranteed returns, foreign investment in long gestation projects will not come easily. Or else, i think we will get stuck everywhere for the sake of money.



The clamour for cut in interest rates has been growing louder and louder but the RBI has remained defiant. What is your stance?



I dont claim to be a great economist of financial whizkid to be able to give an authentic opinion. But i can only say from common sense and from the need of the hour...something which can create growth in industry and create demand in economy...that the rate cut is overdue. People talk of quarter percent and half a percent, but i would welcome a rate cut of 1%. I think we havent applied the rate cut for long long time. Now that inflation is somewhat under control and the other worries of fiscal deficit seem to be under control, i think its time to act now.



In the recent past, some captains of India Inc have expressed their restlessness with the reform agenda of the government? Are you happy with the pace of reforms?



I think its a result of too much of expectations being created right through the last eight months.. whether during the election campaign or afterwards. And with number of announcements being made week after week, people are beginning to think whether there are any results on the ground. However, these announcements are part and parcel of moving forward. Whether through the ordinance route or any other route, implementation of many pending policies is progress. I think we have to give the government another six months, now that we have given many decades to others. One has to wait and see what really percolates on the ground.



How advantageous is the Make In India campaign of the Modi govt to a diversified conglomerate like L&T?



It is something which ought to have been done many years ago. The manufacturing sector contributes only 17% of GDP. In China, it is 51% and the Far East countries, it is over 40%. India has over 1.2 billion people and they all need jobs. There is no point in only having them trained in skill development centers .If they don't get jobs, they get frustrated and leave India. The whole drive of manufacturing in India will create millions of jobs and that is what this populous country needs.



So to me it is a great step being taken if implemented rigorously because the real success comes from implementation. A lot of policy announcements can be made but every single policy needs to implemented with a rigorous follow up and micro -management. To that extent, whatever L&T does in manufacturing will get its own impetus and we welcome that.



How conducive is the current defence policy regime for big players like Larsen & Toubro?



So far, the defence policy in India was only to promote the public sector and the only constituent of the business segment which was excluded was India's private sector. The new government has come out with Make In India regardless of whether you are a govt or a private company. To that extent, i think technology will spread very rapidly in India to the small and ancillary sectors because when the main contract is given to a bigger company, lots of ancillary cos prosper due to sub-contracting. Therefore, I see a great sector emerging which is technology driven..something which we missed because of past policies. I am very upbeat about L&T as we are well-equipped in weapons systems, nuclear submarines, ultra-modern shipyards, defence electronics and fieldguns. We need to concentrate and build our competencies now.



What are your expectations from the Modi government's 2015 budget?



I am not a great believer that the budget is everything. I think the kind of thinking that must be followed is a five year strategy. I would place much more emphasis on five year plans rather than an annual budget.