The Reserve Bank of India’s 0.25 per cent rate cut is not enough to revive economic growth and much on the interest rate cycle will depend on external factors such as the monsoon and on global factors, say India Inc leaders.
“This is not enough. Trade and industry were expecting a higher rate cut to make a success of the Make in India campaign. Since the economy is moving in the right direction and inflation is coming down, the RBI governor should initiate higher rate cuts in the next policy,” said Venugopal Dhoot, chairman of the Videocon group.
Others agree. “I would have been happy with at least a 50-basis point (bps) rate cut. RBI is doing it in a more calibrated manner. Cautious optimism!” said the finance head of a large group.
With falling corporate earnings and sales, chief executives officers (CEOs) say they were expecting RBI to give a kick to the economy with at least a 50 bps cut. With its cautious steps and keeping in mind the fear of deficient rain which might stoke inflation, they say they do not expect a revival till the second half of this financial year.
Most CEOs from the rate-sensitive real estate sector said banks must pass on the benefits to end-consumers. This had not happened with earlier cuts. “The sector has been struggling for the past few quarters with increasing inventories and low demand. We hope more banks will now pass on the benefit to customers, stimulating overall demand. Such liberal moves, coupled with policy reforms, are necessary for revival of real estate in our country,” said Pradeep Jain, chairman, Parsvnath Developers, a Bengaluru-based developer.
“The moment banks reduce rates, that will give enough confidence for RBI to take the next step,” agrees Rajeev Talwar, executive director at real estate firm DLF. “It (rate cut) is a very good sign and shows that the government and RBI are working in tandem. Now, banks have to push ahead.”
The Confederation of Indian Industry said many stalled projects, waiting for credit at cost-effective rates, would find it viable to restart operations if RBI continued with rate cuts. A reduction in interest rates would also provide a fillip for the automobile and capital goods sectors, experiencing a gradual recovery. “The rate cut would facilitate corporate investments in the infrastructure space, including construction, as well as spur spending in rate-sensitive consumer durables,” said Chandrajit Banerjee, director-general of CII.
At a time when the government has contained its fiscal deficit at four per cent of gross domestic product, and undertaken path-breaking reforms to take the economy on a positive growth track, it is important that the monetary levers work in tandem to support the growth crusade, especially as inflation is very much under control, he said.