Indian govt must discourage 'unproductive' gold savings: Uday Kotak

“The world envies India’s growth of 7 percent,” said Uday Kotak, managing director and executive vice president, Kotak Mahindra, told CNBC-TV18 at the World Economic Forum in Davos, Switzerland.

However, there were risks to that growth estimate, he added. One big risk stems from the fact that the degree of “interconnectedness” between India and what is happening in Europe is much higher than what most people realise. If the eurozone crisis gets out of control, there could be a withdrawal of credit lines by European banks, which, in turn, could lead to heavy liquidity pressures in India, more than anticipated.

However, he added that if the eurozone just muddles through and the European Central Bank gives enough funds to banks, then India had the opportunity to get its act together - moreso, since the world is “envious” of its estimated 7 percent growth rate.

Overall, Kotak thought that while Europe faced a number of challenges, it would eventually find long-term solutions. “In other words, the eurozone won’t blow up in 2012,” he said.

In the case of India, he said the government had to find innovative ways of increasing revenues while keeping expenditure under control. The government also needs to deregulate the energy sector as subsidising petroleum products, when oil is at $100 a barrel, is unsustainable, he said. He also expressed concern over huge amounts of productive savings moving into unproductive avenues such as gold.

“Can India afford the luxury of such a huge part of our discretionary savings going out of productive use?” he pointed out.

He also urged the government to “de-incentivise” gold and promote financial savings.

Watch the CNBC TV-18 vidoe below