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No shock, some awe required in Budget 2013: Romesh Sobti

Romesh Sobti, the Managing Director and CEO of private sector lender IndusInd Bank feels the forthcoming Union Budget would be successful if it was a ‘no shock, some awe’ one, where nothing was done to reverse the efforts being made by the government of late to bring the growth momentum back on track.

In a pre-Budget interview with Firstpost, Sobti said: “Broadly I see two themes – will it be a shock or an awe budget? Shock would be any indication which reverses the determined attempts being made by the government to reverse some of the negatives of the economy. Hopefully, nothing will be done to reverse that sentiment.”

Shock would be any indication which reverses the determined attempts being made by the government to reverse some of the negatives of the economy. Hopefully, nothing will be done to reverse that sentiment

Shock would be any indication which reverses the determined attempts being made by the government to reverse some of the negatives of the economy. Hopefully, nothing will be done to reverse that sentiment

These attempts, he said, were the moves to fix the ballooning fiscal deficit and getting the prices of energy right. “These are unpalatable decisions, but the government is taking these steps.”

The ‘awe’ element, he said was the steps which would be taken to push growth and bring energy back to the investment cycle. “That will be the awe factor. If there is clarity on continuing to reduce the fiscal deficit, if there is a clear roadmap on disinvestment, for instance.” The government, he said, can announce the companies which would be up for disinvestment and the amount seeking to be raised from it. That will send the right signal, Sobti said.

“There also needs to be some clarity on the noise and clutter on taxation,” he said.

On the recent 25 basis points rate cut effected by the Reserve Bank of India, Sobti said if one went by the premise that interest rate was one of the drivers for better credit growth as a run-up to the return of investments, then although base rates were cut, banks had not followed that up with rate cuts. On the other hand, he said the cost of deposits had gone up by about 100 basis points. “Over the last couple of months and surely over the last two weeks, CD (certificate of deposit) rates have gone up by 100 bps. This does not bode well for a downtrend in rates,” he said.

The IndusInd Bank CEO said another rate cut – together with affirmative action on improving liquidity – was essential. This could be either by way of open market operations (OMO) or a cut in the cash reserve ratio. The liquidity crunch would be exacerbated in March with advance tax payments and improving liquidity was essential before rates were cut. He pointed out that banks were borrowing nearly Rs 1,20,000 crore from the liquidity adjustment facility (LAF). The ideal is about Rs 50,000 crore, or one percent of net demand and time liabilities (NDTL).

On whether concerted action was now required between the RBI and the government on bringing the growth momentum back, Sobti conceded that the RBI’s room for maneuverability was limited, since consumer prices were still rising while the wholesale price index was showing signs of moderation. “This must be weighing in the mind of the regulator. The maneuverability is low. The embedded inflation drivers are not relaxing.”