Govt needs to focus on planned expenditure: SBI

In an interview to CNBC-TV18, SBI Chairman Pratip Chaudhuri talks about interest rates, government's policy and his expectations from the Budget.

Here is the full transcript of the interview:

Q: The investment rate which has slipped quite sharply is it only a factor of high interest rates or does the finance minister needs to do more to get that investment rate back up again?

A: It's a function of both. I think certainly to some extent it's a function of high interest rate and secondly also of liquidity and thirdly of the outlook. So, the industry must feel confident that the ventures that they put up would be generating enough cash. Of course for an enduring fast growth it is necessary to have really lesser rate of interest.

Q: The interest rate and the liquidity is a function of perhaps the Reserve Bank of India, but what can lead to improving the confidence of industry?

A: Firstly would be the fiscal deficit and particularly we would be worried about the oil deficit, which is now in excess of Rs 1 lakh 50000 crore. So food deficit, of course is Rs 50000 crore, but the impact is direct. So I would not recommend a sizeable slashing down of the food deficit, but to my mind there could be some savings in the defense expenditure because the external environment today is less intimidating. The efficiency of spending has to be improved and we should not talk in terms of so many thousand crore are allocated to schools, hospitals.

You should measure them by physical built that so many classrooms with so much of space accommodating so many children have been built and similarly so many hospitals with so much of space and so much of beds have been installed and the public spending particularly by the public sector companies, which are sitting on a pile of cash that needs to be accelerated.

Q: What would you like to see from the Finance Minister on this course? I know the Budget is not perhaps the place where policy reforms will be announced, but let's take this as a platform where we can look at what else he can do over the course of the next one year?

A: Firstly I think what resources are allocated are very important. So, I would very closely look at the number for plan expenditure because in our country my believe is that significantly the percentage of plan expenditure to the total expenditure is declining.

So, the non-planned expenditure is more of revenue expenditure and plan expenditure is what leads to the increase in capital stock. Look at the way China has grown; year after year they have invested in railways.

I would not put so much emphasis on land because even in the cities, in most of the cities they have built the metro underground and today technology is available, which allows you to dig underground without consuming too much of land. So, more planning is required. Even the trains, why can't they be made double-decker trains? Why can't the railway stations be two or three floors. Look for the Beijing railway station it looks better than any of India's airports. Today they have 2-3 floors. So, simultaneously when today from our railway station four trains can start, from there 10 trains can start.

Q: How big shock can come from oil and the rupee?

A: Significant because there is a theory floating around that every time the oil prices have gone up there has been a crisis right from 1972 then to 1981 then in Iraq war in 1991 and even the 2008 crisis people related more to oil reaching $ 150 per barrels.

So oil going up would be definitely significant because particularly India is deficient in energy. We have to think of our own ways of developing energy. For example, we added 2000 megawatts of solar power last year, but a country like Germany, which gets sun light only for six months added 15,000 megawatts.

Q: Are you seeing investment confidence growing anywhere, even nowhere near where the stock markets have grown, but investment confidence grow anywhere in the last 45 days?

A: I think yes. There is a noticeable movement for the better.

Q: In investment rate?

A: The very fact that the government says that look here we are having a meeting on coal, energy linkage. I have visited a number of energy companies in the last 3 days, they are really saying yes, things are moving.

We don't expect a miracle in two months, but what was new in these two months, different from the whole of last year at least government is saying that we are aware, let us try to do something. I don't know to what extent I will succeed, but look at me, I am trying, so even that is a huge positive.

Q: So it's no longer a sleeping government in Delhi, but it's a responsive government at least?

A: I would not say sleeping, but it is seen as taking concrete steps. I was surprised this time in the credit policy as I never expected a 0.5 per cent CRR cut because they are so obsessed with fighting inflation, but even that shows that there is greater pragmatism in government.