In the backdrop of inflation, only a brave central banker will bring down interest rates, according to K. V. Kamath, Non-Executive Chairman, ICICI Bank Ltd.
Delivering the third Ravi Mathai Memorial Lecture at the Golden Jubilee Celebrations of the Hyderabad Alumni Chapter of Indian Institute of Management-Ahmedabad (IIM-A), he said inflation had not reacted to the medicine of repeated interest rates hikes.
The Reserve Bank of India is scheduled to announce its mid-quarter monetary policy review on December 18.
The untamed inflation would lead us to the basic question of the nature of problem affecting the economy, Kamath said, adding: “We have supply and distribution problems in food and related areas. Till that is addressed it might persist.”
In the first six months of next year, the Government has to fix policies left unfinished and environment and land-related issues, the senior banker said.
Terming these as ‘agenda items for the next Government,’ he said that Indian economy was in the state of preparing the engines to be fired. “But these have not yet fired and some ground work had to be done.”
The pitfalls to look for would be fiscal deficit, current account deficit and inflation. The interest rates need to be right and under control. “If the first three are not set right, then the fourth (interest rate policy) cannot be in place,” he added.
On the current economic slowdown, Kamath said the halt in infrastructure projects/growth was the main factor. “My own bank had sanctioned 10-15 infrastructure projects every month during 2008-10. But there was none in the last two years,” he said.
Stating that the ‘policy of inaction’ of the Government had resulted in this stagnation, he said raising some policy/regulatory issues and not resolving them has become the order of the day.
“We need to get stranded projects moving and get new investments to trigger the virtuous cycles of investment and consumption,” Kamath added.
Ravi Mathai was the founder-director of IIM-A.