Liquidity a worry: HSBC India chief

Naina Lal Kidwai, HSBC's Country Head India and Director Asia Pacific said that liquidity in the Indian system was a cause for worry. She observed that the huge government borrowing was crowding out the private sector. Addressing the press here on Thursday, she said “We do need to bring more liquidity into the system — this is a cause for worry and one hoped to see RBI easing the CRR.” She added jocularly “I know I am sticking my neck out”. Responding to a question on the CRR cut during the last review by the central bank, she said that somehow the liquidity released by the lowered CRR seemed to have been balanced out by cash withdrawals of an equivalent amount from the system during the January-March period. “So, liquidity remained thin.” In India, the combined effect of the CRR and the Statutory Liquidity Ratio (SLR) was higher than most other countries. Admitting that the RBI was in a difficult position, she said “I fear that on interest rates they are still not comfortable with a cut as inflation is still an issue. We have still not seen big supply-side growth and the 2 per cent increase in excise is potentially inflationary.” She favoured a signal cut in interest rates. Ms. Kidwai said that the lower gross domestic product (GDP) growth rate was disappointing. Still, it was a robust rate, she added. She felt that India would be back on the growth trajectory before long. “India's potential has not gone away,” she said. She lauded the e-initiatives being rolled out by West Bengal even as she noted that it was among the States which was supporting Goods and Services Tax (GST), a tax which would have a direct impact on GDP growth rate. On the retrospective taxation issue, Ms. Kidwai said that tax clarity was something every overseas investor would look for. She said HSBC's global resource units here were doing well and had a headcount of 3,000. However, India was no longer a low-cost location as salaries here were rising at a time of opposing global trends. Keywords: HSBC