Rupee bonds key policy tool in government‘s kitty: Kidwai

The RBI’s recent moves to restrict money supply to curb rupee volatility have fanned fears of a rate hike. Speaking to CNBC-TV18, Naina Lal Kidwai, country head, HSBC India and president of Ficci, on Friday said that the industry would like a status quo maintained on the rates front. She added that rupee bonds were a key policy tool in the government’s kitty.

Also read: RBI's rupee steps to hit growth if not rolled back: Kidwai Below is an edited transcript of her interview with CNBC-TV18 Q: What do you think of the current situation? A: Clearly, the wish that interest rates go down has vanished. I do not believe interest rates can be taken down in the current scenario. The effect of the liquidity squeeze is quite worrying because of the impact it would have on potential rate increases, for mortgages or auto loans. This means that the consumer-led demand, which is so important to bring growth into the economy, gets impacted and hence the clarification from the government that the measure on the Liquidity adjustment facility (LAF) is indeed temporary a good indication. So, I would hope that it is not going to stay for longer than a couple of months. Q: As you pointed out, the hopes or the possibility of a rate cut as you clearly said and articulated have vanished. Gross domestic product (GDP) forecast is now 6 percent by government estimates. So, that clearly is in indication of the fact that they don’t really expect the economy to revive? A: We got to remind ourselves that we are a country that should be at 8 percent, that is our true potential, but the fact that we have dropped is not unusual in that we are not the only one that has dropped. Having said that we did lose the plot in terms of growth and the fact that it became a major statement by the finance minister in the Budget only in March this year that growth was central for inclusion, growth was central for revenue creation are all indications that growth is back on the charts and we have seen that in terms of some of the actions taken only recently on foreign direct investment (FDI). Q: Just over the last 24 hours, we have seen Posco pulling out of Karnataka, we have seen ArcelorMittal pulling out of Odisha – Rs 40,000 crore in terms of what was expected to be invested into the state, saying, no can do. The question is this business of hiking FDI caps at this particular point in time, does it really mean it going to be materially significant and as far as the CCI is concerned? These were the projects that the centre and the state government should have gotten their heads together and said how can we make this work? That doesn’t seem to have happened. A: In my opinion and in fact also in a statement from Federation of Indian Chambers of Commerce and Industry (Ficci) is that the processes which have led to these logjams also need to be simultaneously looked at. Q: I know for a fact that a working paper has been submitted to the finance ministry on a global rupee bond. Do you think that that is the best possible route to take at this point in time and do you believe that there will be appetite in the market for such a bond? A: We have done this before. So, the good thing is this is not a trial balloon. India has raised two tranches quite successfully. In one case dollar denominated and in one case rupee denominated and we should do it as a rupee denominated one. There is always a non-resident Indian (NRI) market out there which if allowed to leverage in their home markets and they play that game quite well historically they would find it quite attractive if the coupon is right and the leverage were available. Q: So, at this point in time, a bond with a tenure of 5-10 years to start with and a first tranche between USD 500-1000 million, do you believe that that makes sense given the challenges, given the volatility in the currency and given the risk associated with such a product? A: I think it makes sense. A lot will depend on the pricing. If priced right, it makes sense. The only caveat I would make is when we did the earlier bonds which I was quite deeply engaged in, we had a much easier environment in terms of the rules and regulations that enable marketing of these instruments. In that view, today it can only be an approved broker, approved instruments in many markets and we have to just reassess the rules as to which countries, which domains we can market the same because we will need the offshore marketing machinery to take this in to the potential what I think would be NRIs as they come in. However, even as we look at this it is critical. The huge dependency we have in terms of our importing of hydrocarbons and gas needs to be looked at very seriously.