Mar 15, 2012, 03.16 PM IST | Source: CNBC-TV18

RBI credit policy: Market still hot for global investors, says Nilesh Shah

Nilesh Shah, director, Axis Bank says that the RBI aided liquidity and control inflation in the last three-to-four months.

Nilesh Shah, Director, Axis Bank

In an interview to CNBC-TV18 Nilesh Shah, director of Axis Bank says that the RBI has been supportive in providing liquidity in the last three-four months, by cutting CRR rates and also keeping the inflation in control.

He also feels that rates being unchanged are in line with market the expectations. There are opportunities which are available without raising the taxation rates we can still control our deficit.

Below is the edited script. Also watch the accompanying video.

Q: How do the equity market react to untouched rates?

A: From an equity market point of view there is no disappointment. RBI is doing what it is suppose to do. It is also assuring the market that if inflation comes under control, then there is an opportunity for rate cut that is balancing of two difficult objectives and RBI is doing it quite nicely.

Q: Do you think that there is no domestic reason for buying infrastructure stocks?

 A: Global liquidity is coming to India because of domestic growth. We can argue whether 6.5-7% growth is good enough or not. For the global investors, it is good and if you see China is also slowing down.

Then probably Indian growth rate for next year, which could be targeted around 7.5% plus level will be very positive. Global investors are visualising domestic factors positively. Clearly, rate cut has not happened but that was not what was expected by the market.

Q: Will brokerages trim growth rate?

A: When we are looking at fiscal deficit for India we should look at what is happening to fiscal deficit across the world. Most of the nations which are rated much higher above us have higher fiscal deficit and higher debt to GDP ratio compared to us.
If they can get away with a higher deficit in debt to GDP ratio, certainly we should keep that in mind from an investor point of view. Higher fiscal deficit need not necessarily come because we are unable to raise taxation revenue. There are opportunities to raise revenue by way of 2G spectrum, divestment. monetizing government resources like land or some other asset class. There are opportunities which are available without raising the taxation rates we can still control our deficit.

The lower tax to GDP ratio of India also gives confidence that if we improve tax compliance then probably we could make a difference to deficit without raising rates.

We have to look at how we can raise revenue without raising rates, without getting into political give and take and probably thats what market will be looking forward to tomorrows Budget, raise revenue but dont raise the rates.

Q: What is the fiscal deficit and gross market borrowing number is?

A: In Chinese philosophy 8 is the good number, I think tomorrow 5 will be a good number. Deficit below 5% and above it program just around Rs 500,000 crore in gross terms will be well accepted by the market.

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