Time to go easy on monetary, tighten fiscal policy: Kotak

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Urging India to move ahead with economic reforms to benefit from the changing global dynamics, top banker Uday Kotak has said it is time for the country to go for a tighter fiscal policy and ease its monetary policy stance.

"In the world, what we are seeing is an easing monetary policy and a move toward tighter fiscal policy," Kotak told PTI.

"But in India, we had a tighter monetary policy and an easier fiscal policy. It's time for us to change that equation," he added.

Speaking on the sidelines of the just-concluded World Economic Forum summit here, he also asserted that the Indian financial sector was in a much better state than what was perceived, but the country must move forward with reforms.

Kotak further said, "The real pain in the Indian financial sector at this stage is that the mood is worse than the reality and the reality is better than the mood. All the so-called pain is down to about 20-25 leveraged companies and outside that, the Indian financial sector is in good shape," he said.

Asked about his expectations from the Union Budget this year, the chief of Kotak Mahindra group told PTI he would like to see the Budget manage the fiscal deficit and would want the monetary policy to get more relaxed and the fiscal policy to get tightened.

Kotak said the RBI could again consider a CRR (Cash Reserve Ratio) cut in March and would start lowering interest rates in April. "I see a 100-200 basis points cut in the policy rate of the RBI in this calendar year," he added.

He also listed out rationalisation of subsidies in the energy space and steps to check high gold imports as some immediate steps alongside other economic reforms to bolster the Indian economic growth story.

Asked about the European crisis, which dominated the WEF meeting in a big way, Kotak said: "My view is that Europe would most likely be a muddle, not a crisis, at least for 2012. This would mean a slow growing euro zone economy, but not a blowout situation."

"The US economy is growing 2-3 per cent. So the overall Western world will see very slow and sluggish growth, but would not see a major crisis situation."

"The whole approach of the central banks in the US and Europe is to keep the liquidity very easy and very low interest rates."

"The outcome of this is that, one, if there is no crisis but a slow growth in the Western world, it is an opportunity for India to build itself in this period," he opined.

Kotak further said that India can utilise this opportunity to put its reform agenda in place.

"In my view, two immediate steps are also required, one being in the oil and energy sector, which India has been ignoring, but should now go ahead with the rationalisation of subsidies, etc," Kotak said.

"Secondly, another major import India does is of gold and India must find ways to slow down the import of gold, it is not only putting pressure on current accounts, it is also sucking out domestic savings into an unproductive asset," he said.

"If India can maintain 7 per cent growth in such an environment, it is an impressive performance, but we also must take this opportunity for doing something for increasing the flow of savings into investments. We also need to focus on the supply side our economy. India must use the opportunity in 2012 to build itself strong," Kotak said.