Ahead of the credit policy review on Tuesday, India Inc expects a rate cut by 50 basis points. Given a subdued economic growth including the industrial output, India Inc is expecting at least 50 basis points cut in the benchmark interest rate at least this time around by the Reserve Bank of India when it takes into account falling inflation and a lower build- up of price rise, an ASSOCHAM survey has pointed out.
An overwhelming 89 per cent of the 226 respondents from the corporate leadership position want RBI to cut interest rates, though those expecting the RBI to oblige the industry are far less at 56 per cent.
“This shows that while there is a strong demand from the industry reeling under slowdown to see lower interest rates, their expectations are muted given the track record of the central bank in staying over-cautious and conservative when it comes to a choice between growth and inflation,” the chamber said.ASSOCHAM India
It said the industry expectations for a rate cut are not unrealistic and based on more than expected decline in the retail inflation which is currently hovering at 5.52 per cent (for October) , much lower than the RBI target of eight per cent by January, 2015 and six per cent by January, 2016.
Helped by a sharp reduction in the crude oil prices which have dropped by about 30 per cent in the last six months, retail prices of several essential items of use to the common man like vegetables, cereals, milk and milk products have seen a moderation in inflation. In fact, there are items like vegetables which are selling at lower prices today than six months ago.
“What is more significant and a point to be taken into account by the Reserve Bank is that even the outlook for the crude oil prices rising again look dim as is evident from the latest meeting of the OPEC where it was decided to maintain the production levels at the current levels.
Instead of any increase in oil prices, there is a talk about the prices further dropping to USD 60 per barrel. Thus, at least on this count, there should be a great comfort level for the RBI to go and announce the rate cut,” ASSOCHAM Secretary General Mr D S Rawat said.
The interest rate cut, will help several sectors of the industry in a twin way. For one, it will boost consumer demand and induce higher production. Secondly, it will reduce the interest burden for hundreds of large corporates and lakhs of SMEs which are under heavy leverage and are battling the debt burden.
Even the banks will significantly gain as lower interest rates should at least ease concerns over the non-performing assets. Real estate, telecom, automobile are among the sectors which are highly leveraged and the consumer durables and non durables are highly interest rate sensitive.
“India is today the best performing among the emerging markets on expectations of revival in the economic growth and on the rising performance index of the new government. It is time the RBI added to this optimism and built on it,” the ASSOCHAM said.
The GDP data in the second quarter is far from pleasing and thus, for the real breakthrough a number of initiatives must be taken in a combined manner by the government, RBI and Parliament to take the growth to the fast track. “If we can get the Insurance Bill passed in the current session of Parliament and interest rates are cut, these two measures themselves will see further pick up in the business confidence,” the chamber said.