The first woman President of industry chamber FICCI, Naina Lal Kidwai is disappointed with estimates of sub-6 per cent economic growth, but shares her optimism with the Government. A veteran banker, Kidwai says she expects a rate cut in 2013 to fuel growth. Excerpts:
How do you assess the current economic situation?
If you look at where India is right now, we have seen growth rates that are under six per cent, so it is disappointing. But there are rays of hope as some sectors are doing well.
There are problems in power and infrastructure, but the Government’s ability to restore these sectors to the levels that we would like is evident in the setting up of the National Investment Board (Cabinet Committee on Investment). I think that is a plus.
The other big plus is that the sentiment has changed on the back of reforms that the Government looks like it does want to push through. Some of this may be simple Bills that have been pending.
But two months do not make a year, unless we keep up the momentum. This is important. I think we are all going into 2013 with a little bit of sprint, but are we going to make that sprint a marathon? That is the key.
I think there are some simple solutions. One of these is goods and services tax because it is one move that will raise GDP by two per cent or a minimum 1.5 per cent.
Do you share the Government’s optimism on six per cent growth?
I do believe that India at its current savings and investment rate cannot do less than 5.5 per cent growth. Now that we are at the bottom, we can’t do worse, given our fundamentals. So, 5.5-6.5 per cent is not impossible, as there are some industries that are powering ahead. The drag has been in specific sectors. But, the momentum needs to kick-start because it has slowed down to a point that is unacceptable.
Do you believe the Government is willing to take key Bills to a logical end?
Actually, there is nothing contentious. For example, in the insurance Bill, barring FDI, and even in FDI a distinction has been made between FDI and FII, there is so much else that is needed for the sector’s health. So, wherever the Bills have come through the Standing Committee of Parliament, there is approval on a cross-party framework. It is hard to understand why these wouldn’t see passage.
Do you agree with RBI’s stand on new bank licences?
I think it is important that RBI leads the policy. But my issue is not with the new banks. I believe that we need consolidation. We have many banks but none of them are of the scale that we need for an economy of our size. We do not have even one bank in the global top 50. So, we need scale and consolidation.
New licenses are helpful, because competition brings better service, fresh money and capital. The issue is that our banks should grow. Seventy per cent of the banking sector is in Government hands, which has to fund that 70 per cent growth. The money that should go into social sector programmes is going into banks, which is what happened last year.
… even this year the Government plans Rs 15,000 crore of funding.
The RBI said that in the next five years if the Government continues to own what it continues to own, what is required is Rs 80,000 crore or so. So, what we really have now is a sector that could be potentially starved of money because, for the balance 30 per cent, raising money from the capital market is not a problem.
The RBI has maintained status quo on rates. Do you prefer growth or checking inflation?
We have a situation where if we open up our interest rate regime, that is, allow it to come down, it would be inflationary. I think the argument is that there is a supply side constraint, particularly in the case of food, which is not really impacted by interest rates….
Industry would definitely like to see the interest rate down and I have no doubt that next year, it will come down. I won’t bet on January, but in the first quarter, I think we should begin to see the first cut, but it will be gradual, and maybe over the whole year, it will be not be more than 50 basis points.
Why I say this is because inflation seems to be easing….But there are concerns as the risk of inflation has not gone away.
shishir.sinha
@thehindu.co.in