India Inc. awaits rate cut boost from central bank on Tuesday

Mumbai, Nov 30 (IANS) India Inc. is keenly awaiting an interest rate cut by Reserve Bank of India (RBI) Governor Raghuram Rajan when this fiscal’s monetary policy is reviewed on Tuesday, hoping the easing of inflation and stagnation in manufacturing make for a compelling case in this direction.

The industry also hopes that this will be taken up by Finance Minister Arun Jaitley during his scheduled meeting with Rajan a day ahead of the monetary policy update, as also suggested by his predecessor at North Block, P. Chidambaram.

"Use your persuasive powers to convince the governor, RBI, that a rate cut is an imperative, if for no reason other than to signal to investors and consumers that the economy would move toward a lower interest phase," Chidambaram had said on Friday.

Expectation in this regard has been fuelled by two primary factors.

Official data on gross domestic product released Friday showed India’s growth at 5.3 percent for the second quarter of this fiscal, dropping from 5.7 percent in the quarter before, with factory output logging a mere 0.1 percent expansion.

This is a major concern in the context of Prime Minister Narendra Modi’s Make in India campaign.

At the same time the country’s annual retail inflation has eased to a record historic low of 5.52 percent in October, from 10.17 percent during the like month of last year, even as the wholesale inflation has dipped to 1.77 percent from 2.38 percent.

This, on the other hand, should give elbow room for the central bank to ease its policy stand.

"An important element of the cost structure for manufacturing is interest rates, and given the current inflation situation, the RBI should ease the monetary policy stance as this will give a boost to investment sentiment," said Ficci president Siddharth Birla.

"Recent Ficci surveys show that despite positive business sentiments investors are still cautious about expansion due to subdued demand conditions and limited improvement in capacity utilisation levels," Birla added.

The former finance minister had a similar take and said the present government ought not to have rushed to take credit for India logging a 5.7 percent-percent growth, adding the rise in stock markets and adulation at overseas events seem to have clouded its mind.

"All signs of a sluggish economy were there — low credit growth, a limping manufacturing sector, no new major investments, stalled projects, infrastructure bottlenecks, etc," Chidambaram said in a statement.

At the moment the bank rate stands at nine percent, the repurchase rate at eight percent and the reverse repurchase rate at seven percent. Bank rate is the interest the central bank charges on loans and advances extended to commercial banks. The other two are its short-and-long-term lending rates.

Easing of these rates can pave the way for commercial banks to lower their interest rates, which could help industry access funds cheaper not just for their day-to-day operational expenses but also for existing and upcoming projects. Individuals can hope for their EMIs to come down.

The Confederation of Indian Industry (CII) had a similar take on its wish list for Rajan.

"The RBI should review its status quoist approach and move towards paring interest rates in its forthcoming monetary policy update to give a fillip to recovery both through higher consumption spending and opening up channels for investment," said its director general Chandrajit Banerjee.