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Slow investment, poor infra adding to inflation: HSBC

business Updated: Jun 16, 2010 00:10 IST

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Banking major HSBC India country head Naina Lal Kidwai today expressed concern over the slow investment flow into capacity expansion by the industry and is partly adding to the high inflation the country is facing now.

"The industry is behind its cycle of investment. The demand is outstripping supply and the industry has been slow to invest in capacity," Kidwai said in an interview to business channel NDTV Profit.

"As a result, you are beginning to see in some products demand exceeding supply and hence inflation coming through that," she added.

Kidwai said the country is witnessing a manufacturing boom, being driven by demand, but capacity constraints are beginning to show up, leading to a situation that for checking inflation investments will have to be made. Rising prices have been causing concern to policymakers for the past few months, on a wide range of issues.

Driven by spiralling prices of essential items, inflation surged into double-digits at 10.16 per cent in May, the highest in the last 19 months, adding to the woes of the common man. Meanwhile food inflation, based on wholesale prices, rose to 16.74 per cent for the week ended May 29.

Kidwai said besides slow investments, lack of infrastructure development in the foodgrain supply chain management has compounded the problem.

"It's not about on monsoon (going bad). We have not invested in infrastructure of foodgrain in a long time, whether it is warehouses or the movement of goods. And this is a price we pay for poor infrastructure," she added.

Kidwai also said aberrations in labour pricing and related issues are another important aspect of inflation. Although the country has the benefit of demographic dividend it takes time for trained labour, manpower and managers to come through the system.