Uday Kotak, Executive Vice Chairman & MD, Kotak Mahindra Bank expects the central bank to change its stance on interest rate by first half of 2015. In an exclusive interview with CNBC-TV18’s Malvika Jain, he said that the Reserve Bank (RBI) will have to put some weightage on wholesale price index (WPI) inflation data as well.
Inflation data based on WPI for August hit a five year low at 3.74 percent courtesy declining vegetable prices and other food articles. Despite this steep fall, experts feel that it is unlikely for Reserve Bank to reduce interest rates since it closely monitors CPI inflation than WPI when deciding on rates.
Also Read: Chances of sub-15% credit growth by FY15-end slim, says HDFC
Below is the transcript of Uday Kotak’s interview to CNBC-TV18’s Malvika Jain
Q: Is the time right for a rate cut?
A: My view is that there is a fair possibility of an interest rate change in the first half of calendar 2015 and whether it is February, April or June, but I expect some interest rate change in that window of the first half. There is a challenge between consumer price index (CPI) and wholesale price index (WPI), the weightage of energy is pretty low in CPI and the weightage of food is extremely high in CPI. Therefore while CPI may be the major anchor, the state of WPI is also something I am sure Reserve Bank of India will be factoring in to its calculations.
Q: If you look at the other macro economic indicators such as the Index of Industrial Production (IIP) which continues to be sluggish, do you really see that the government’s policies are yielding any sort of result or there are certain big ticket agenda items which the government must consider at this stage. It has been in power for over 100 days now. What should it be looking at?
A: The government is playing a Marathon and not a sprint, so give them time. The government has done a brilliant job on foreign policy and is using foreign policy as an effective tool for economic policy as well because we are going to see a lot of interest from global companies and investors to make in India. So I am quite optimistic about economic policy also, but it is a more steady development and not a quick fix.
Q: You did mention about the manner in which the government should be looking at subsidy. As far as the power sector is concerned do you think the time has now come for the government to overhaul its subsidy mechanism for ensuring that power supply in the country doesn’t remain a challenge because that is having a direct impact on industrial production.
A: I am a believer that whatever subsidies you want to give, give it directly and therefore if you want to benefit a particular category of consumers or users, give it directly at that level. Doing it at different parts of the system by subsidising coal or subsidising PPAs is not a good way of subsidy management, clean the entire vertical and if subsidies need to be given, give it directly at the point of use.
Q: As far as the pressures on the banking sector are concerned which are the key areas that you would like to identify for the government to look at and is there any sort of policy intervention that you feel is desirable at this stage?
A: Biggest challenges for the banking sector are clearly the whole infrastructure and related sectors and those are challenges from our past which need to be fixed. And I would say that the core two economic growth is going to be the ability of the banking sector to have capacity to support economic growth.
Infrastructure is the biggest issue, also construction, steel and we are seeing some pressure even in SMEs. So these are the sectors which need attention. My view is that ultimately there has to be a solution and somebody has got to take the pain but recognise responsibility for the pain, take it and we have to unclock the system.