India Inc in wait and watch mode for elections: Naina Lal Kidwai

Naina Lal Kidwai, country head of HSBC India speaks with NDTV's Shweta Rajpal Kohli exclusively on the sidelines of the World Economic Forum in Davos, on the upcoming general elections and their impact on investments. More than foreign investors, India Inc is in the wait and watch mode for elections, she says. (Watch the interview)

Here are edited excerpts from the interview:

Shweta: What's the mood about India in Davos? Do you think some sort of optimism about India is slowly retaining?

Naina: Well it's still early in the Davos schedule. When we started today lots of questions were raised in my one-on-one meetings around the politics of India and I think these issues and concerns are going to remain till the elections happen.

For the players in India and bunch of CEOs who have been big investments in India it remains an attractive market. So, now we have seen that interest and there is no denying the attractiveness of the Indian markets. Well unfortunately we are also seen as a very difficult destination to do business. It's really up to us to close this gap between the attractiveness and the difficulties in doing business, so that we can actually capatalise on the attractiveness factor.

Shweta: Let's talk about the concerns that many delegates here are expressing concerns with regards to the political situation. We had some developments over the last few weeks but still there is uncertainty. And till the time there is uncertainty money will not flow in.

Naina: I think it's inevitable the people will wait but it's not like every company is waiting to put money. Many are waiting to use the capacity they put in, which is still not there in terms of full utilisation. I think we have to work as a country, making sure that we enable the investments.

Also there are lots of questions around GDP growth. People accept so you are at 5 now and I always mention that there is a street view and government view that we will be at 6 next year.

Shweta: So people don't think that India can even clock 6 per cent next year.

Naina: They are asking how and what are the underlying assumptions for 6 (per cent). So we have to defend that 6 in people's mind. Our fundamentals are strong we had a good agricultural year; however we need support in the manufacturing sector, the service sector is doing ok. So it's still needed to be the explained and I hope we are not going to end up losing a little bit of time now because of the elections. I do think if we can look at the states that that are delivering well on industry and industrial growth and we have a number that are doing quite well.

Shweta: Which are the ones according to you that top the list?

Naina: I mean the obvious one is Gujarat , Maharashtra but I think the performance in terms of terms of growth in Madhya Pradesh is quite amazing. States like Madhya Pradesh, Rajasthan, Bihar, which have progressed very well in terms of the way they are delivering and I think this is the story we need. This is the story of India at a state level because actually that is where industry really has its focus.

Shweta: Policy instability is something that we have not really been able to resolve.

Naina: That has really been a serious dampener so that is something clearly you know the centre has to arrest.

Shweta: So you are saying if we were to look at some of the major issue that led India to slow down, you would call policy instability on taxation matters the no. 1?

Naina: And it continues so and it's not just for foreign business, Indian businesses face it too. I hat has resonance pretty much in all the meetings I have today including some pretty horrible tales from Indian companies as well. Because people want clarification at times, advance rulings are today available only to non-residence; it's not available to Indian companies. If there is such inconsistency in tax ruling then let's have a process which allows clarity, so that those who want to live within the law get it right. The way we are drafting the rules are leaving too much to interpretation.

Shweta: And you are saying till that happen we are not going to get the investments cycle moving, because last two years the mood of India clearly was one of extreme pessimism. While the finance minister seems to be doing a lot of damage control but has that mood changed significantly or you think India Inc is still not quite there?

Naina: Yes India Inc is not there. I think India Inc is even more so than foreign investors is in wait and watch mood of the elections. But if you ask is there going to be flood of investments just after the elections? My answers is no. I think there is lot else fundamentally that is going to change including growth.

Shweta: But is the focus is right now on economic policy on getting road backs because the sense one is getting at least is that we are seeing a lot of populist announcements. Do you think that dampers the sprit further in terms of facts right now is all political not economic.

Naina: You know economic thinking and some of the pundits will tell you the subsidies are the poorest form of delivery of products to those you are trying to get it to. So it is a pity that we have to resort to subsidies. Don't forget for every subsidies we its money that could have been utilised for something else.

Shweta: But subsidy makes good politics, they make terrible economics but it makes good politics; and what you do in a situation where people like the sound of air?

Naina: And the shame of it is that it has a boomerang effect. So, we have seen other states coming up with such announcement which is unhealthy.

Shweta: But it is so called the AAP effect which is now playing out across the country, at least in terms of populism that is working. Is that a concern? How is the emergence of AAP being viewed, for instance by leaders here in Davos?

Naina: I think where we saw a big change and which is a very valuable change is the heightened awareness of corruption. And to have an election fought on issues of corruption is huge. It is clearly something that needed to be addressed.

The economic policies of AAP I am not familiar with. I only know of the couple of steps that had been taken recently and I hear that they are putting together something.

The comfort which we draw at least from BJP and Congress, is that they both tend to certainly acknowledge that growth is important for India and for that we need industrial and manufacture and financial growth. As Chidambaram said in his budget speech last March and we know that Modi embraces this as well. So that was the comfort.

Shweta: So you are saying that whichever party comes to power, whether it's the Congress or the BJP, the underlined assumption is that it is party that would like to give growth chance.

Naina: Correct. There may be differences in the way it's executed or the ability to execute. A lot of frustration of India Inc has been more around execution of policy rather than policy itself and where there is policy itself.

Shweta: But AAP, the concerns remain that it's too left to centre.

Naina: We don't know so let's hear....

Shweta: That's what many believe that the sheen is really wearing off a party that came on very good promises sort of unravelling as the finance minister said today.

Naina: Well that's hard to say. It's a point where this party is very young and it obviously needs to grow up. We want to give it a chance and hopefully they don't have too many mistakes along the way.

Shweta: Before we wrap up, I have to talk to you about interest rates. Will there be rate cut in the coming RBI meet or do you see them continuing with the status quo?

Naina: I tend to believe that rate cuts are in the air, because it's something that the industry has been crying itself hoarse about. The studies, everyone we did, surprisingly had interest rates being high right up there in terms of deterrents for investments. We have shared this with Governor Rajan as well.

Clearly the food inflation is down and there should be no reason at all for an increase in interest rates. Is he going to bring the interest rates down as yet, I don't know. In my mind to how growth is faltering, this has to be one of the data points in his decisions. The signal he gave that that growth is as central as inflation to his thinking, would certainly merit at least a hope that the interest rates come down. I would say interest rates are flat and hopefully coming down.