'The challenge today is prices of commodities'

ICICI Bank Managing Director and Chief Executive Officer KV Kamath is the new president of the Confederation of Indian Industry (CII).

In his first interview to Business Standard as CII president, Kamath told Rayana Pandey that recent steps taken by the government to augment supply in order to control inflation could have come a little earlier. Excerpts:

What is your view on recent measures to tame inflation?

The response to inflation articulated by the government is three-pronged "" fiscal, monetary and supply-side measures.

Monetary measures are only a signal that there is a need for caution, therefore only the cash-reserve ratio (CRR) was hiked. It also means that the government wants growth to be on track and hence interest rates were not hiked.

Certain policy measures like import duty cuts are clearly warranted, but some of those could have been taken earlier. Recognising supply-side challenges could have happened two months earlier.

Is an interest rate hike in the offing?

The CRR hike is a stance taken by the Reserve Bank of India. Interest rate movement will depend on actual market condition or liquidity, and the market is very liquid.

So far, banks have not seen shortage of liquidity. We need to wait and watch how the market behaves and in a fortnight or so we will be able to get a feeling of which way interest rates are headed. The challenge today is prices of commodities, particularly food and metal.

Is India Inc looking at tough times in the days ahead?

No, we are not seeing a dramatic slowdown, whether in GDP growth or corporate growth. What gives me confidence is the fact that there are projects worth $700 billion in the pipeline.

Do you see a further bias towards tightening of home loan rates?

What is really impacting affordability is property prices, which in the past three years went up by 100-400 per cent. It is not the interest rate alone.

Even as the interest rate has moved from 7 to 10.5 or 11 per cent in the past few years, it is not a critical factor. I guess there has to be correction on both fronts, property prices as well as interest rates. We will have to wait for a couple of months to see how inflation moves, but if property prices correct before that, we will see a fillip in home ownership.

What is your agenda as CII president for the coming year?

The CII will have a two-fold agenda in the coming year: ensuring that growth remains on track and skill development. An aspirational GDP growth number for us is 10 per cent.

Though it is a challenge in the immediate term, I am hopeful that given what is happening around us, we should not be falling too much from where we are. Growth in the current year should be between 8 per cent and 9 per cent and by 2010-11 touch the 10 per cent mark.