Dec 07, 2012, 03.54 PM | Source: CNBC-TV18

FDI to boost supply chain; CY13 to see higher inflows: HSBC

Naina Lal Kidwai, Country Head of HSBC India believes FDI will bring in fundamental changes to the supply chain. This has also paved the path for foreign institutional investors to increase flows to India

As the Lok Sabha cleared the much anticipated Foreign Direct Investment (FDI) in multi-brand retail , hopes of fresh investments into the Indian economy has gathered steam. Naina Lal Kidwai, Country Head of HSBC India believes FDI will bring in fundamental changes to the supply chain. This has also paved the path for foreign institutional investors to increase flows to India and therefore, she feels inflows will be positive for the calendar year and it will be buoyant as we enter 2013.

Kidwai is also hopeful about seeing some finance bills reaching a decisive conclusion. According to her, there is a need for capital expenditure to get the supply side, employment and investments in the country moving. She further added that the PMI trajectory looks positive and it suggests an improvement in overseas demand. However, uncertain policy environment may drive away investments, cautions Kidwai.

Besides, 2013 is going to be an important year for meeting growth expectations, stated Kidwai. She expects interest rates to come down in the near term.

But, she is slightly concerned about the liquidity situation in India and feels woes in this regard still remain. There is also a need for reviving priority sector lending in the banking platform, opined Kidwai.

Here is the edited transcript of the interview on CNBC-TV18.

Q: It does look like Foreign Direct Investment (FDI) in multi-brand retail is a vote that will go through today as well. Even if it does, do you think you are going to see a gush of investments since the debate was so acerbic and the mandate so fractured?

A: At the end of the day the signalling effect of seeing a transformational policy agenda with determination finding its way through parliament debated, discussed and indeed steered through is possibly more important than the act itself. I have no doubt that in the long run it will call for very important changes in terms of the supply chain for India's farmers, for suppliers into the system and the fact that there is a mandatory 30 percent clause there which should mean that at least that much investment will certainly happen in the supply chain for these large retail outfits.

I do hope in time that exactly as China has become a very important supplier into some of these large big box retail groups in the rest of the world, India could also become one, supplying to the rest of the world through these players. But, it is in itself a very important signalling effect.

We have seen it through the response of the stock market which was already on a certain upward movement on the back of the confidence that the government was demonstrating even before the session in the Lok Sabha ensued. The stock market did move up and I think for India, that has always been a good bellwether of the mood.

It is important that we are entering 2013 in a somewhat buoyant mood. After all, as far as FII investments into India goes, we have seen a net positive result in 11 months of this year and we have also seen the Indian stock markets come back up to become one of the largest market caps in the region, second only to Japan, Hong Kong and China.

We are sitting in a very good place based on what is basically a sentiment change. It is the sentiment more than the act which has benefited. But, the act itself will in the longer run also yield a very good dividend .

Q: How optimistic you would possibly be about further reforms going forward? There are still about a few days left in the winter session and a lot actually can be done via an executive decision as we saw with FDI in multi-brand retail. Do you think that the government has the energy to do anything more by way of reforms?

A: We are expecting it most certainly. It costs us nothing to expect, but I do believe that there is a desire on the part of the government to see a number of these pending legislations which have been pending now for a couple of years in some cases, to go through. I also believe that we have in parliament today a mood, even with the opposition parties to not appear obstructionist, to have a healthy debate.

At the end of the day, they are trying to enable some of these legislations to move forward. If indeed that is the change, the desire is now to deliver, to allow parliament to function, to allow these important bills to be at least debated and discussed with some going through and some maybe seeing certain amendments.

But, at least there is a desire to get activity that the country so desperately needs. I think this therefore, is going to be the game changer now going forward. The desire to see some of this go through and I have no doubt that some of the finance bills will begin to see the light of day.

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