Complains of ‘poor transmission’ of the central bank’s policy to banks

The President of the Federation of Indian Chambers of Commerce and Industry FICCI) Naina Lal Kidwai said on Monday that the Reserve Bank of India’s monetary policy, which is due later this month, “is unlikely to result in an interest rate cut.”

Addressing the media on the sidelines of the FICCI’s National Executive Council meeting in Bangalore, Ms. Kidwai said, “Our hope of a cut is down even though the RBI has managed to keep inflation and (slide of the) rupee in check.” “In fact, our fear is of rates going up,” she observed. She also complained of “poor transmission” of the central bank’s policy to the banks.

Asked to explain FICCI’s stand on the gas price hike announced recently, and its impact on the power sector, Ms. Kidwai said, “Since the fuel bill accounts for the biggest share of our current account deficit, and since the current account deficit is seriously out of control, we absolutely welcome the increase in gas prices.”

Given that end consumers of imported gas in India now pay $16 per mmbtu, the increased price (effective from April, 2014) would still be cheaper, Ms. Kidwai argued. Admitting that the hike would violate existing contracts between gas suppliers and consumers, she pointed out that from the “country’s standpoint, a realistic price-point for domestically produced gas is a necessity.”

“The logjam (over prices) was caused by the way the contracts were signed in the first place,” she observed. “The interesting thing is that at this price (of gas), solar power suddenly becomes a workable proposition,” she remarked.

“FICCI does not support the Food Security Bill,’ said Ms. Kidwai. She said the scheme is likely to cost more than Rs. 2 lakh crores per annum, not Rs. 1.2 lakh crores as claimed by the government. “A scheme that is based on cash dispersal is a far better option,” she argued.

Welcoming the recent relaxation of ceilings on FDI, Ms. Kidwai pointed out that “debt-ridden” telecom companies could now access foreign capital. She said the relaxation of FDI norms in defence would promote domestic industry. However, its effect would depend on how the policy is implemented because the government will continue to adopt a “case-by-case approach,’ she observed.

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