Instead of controlling consumption, policymakers should focus on augmenting supplies so that inflation can be controlled structurally in the long-term, said Ms Chanda Kochhar, Managing Director and CEO, ICICI Bank.
“We do have challenges. We have challenges of inflation and challenges arising from the fact interest rates have gone up extensively in the last couple of years.
“But I think what we need to focus on is how do we structurally control inflation in the long-term, how do we arrive at long-term solutions for inflation,” she said in a panel discussion at the ‘India Economic Summit 2011', organised by the World Economic Forum.
Consumption power
Ms Kochhar observed that India is a country with a young population and it is adding consumption power in the hands of 11 million additional people every year as they get into the working-age group. Moreover, per capita incomes are also going up.
“Beyond a point, instead of controlling consumption we will have to focus on adding supply, thereby rectifying the supply-demand imbalance in order to be able to control inflation in the long-term. So, clearly, we have to focus on long-term structural solution to tackle inflation,” she explained.
The RBI, in its second quarter review last month, said that the year-on-year headline WPI inflation remained stubbornly high during the financial year so far, averaging 9.6 per cent. To tame inflation, the central bank upped its signal rate for the 13 {+t} {+h} time in the last 18 months.
De-leveraging
No country in the world is de-coupled from the de-leveraging that is taking place in the global financial markets, said the ICICI Bank chief.
De-leveraging could impact India at a time when it needs more access to capital in the form equity and debt to grow, she added.
Banking sector resilient
The resilience of the Indian banking sector comes from the prudential guidelines and the prudent lending practices, always lending against cash-flows and not resorting to sub-prime kind of lending. So, from the point of view of liquidity, solvency, access to capital there is lot of stability in the sector, Ms Kochhar observed.
When the world faced the financial crisis in 2008, banks in India remained resilient and ensured that the growth story remained strong. The banking sector which is, in a way, the heart of any economy has to always remain strong. In the developed countries when the heart (banking sector) started to become weak the rest of the parts of the body too started becoming weak.
“In India, the banking sector continued to remain resilient (through the 2008 crisis) and when the real economy needed some amount of hand-holding, banks were always there. We have to feel proud of the fact that we moved in line with the country's requirement. Today, we remain as resilient to enable the country's growth in the years ahead,” said Ms Kochhar.
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