The officials at RBI think interest rates are not a huge factor for the deceleration of growth and think much has been made out of it, while giving a cast-iron justification for holding on to these. But a battered India Inc is not buying into the argument. With status quo continuing, they remain an exasperated lot.
“Even the finance minister said he was expecting a cut. I can’t seem to understand what has led to the inaction today,” said Adi Godrej, chairman, Godrej Group, and CII President. “What our economy needs is growth, which is possible when key rates are slashed. If inflationary concerns were the key reason for the policy inaction, then it seems the central bank’s concerns are misplaced. Core inflation is coming off a bit. At this stage, our attention should be on stimulating growth.”
Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel, said: “Right now, there is no pricing power in the industry, no growth at all. Every sector in the industry is suffering. Hence, there is a need to look at interest rate reduction. This is very disappointing for the industry.”
“I was expecting a rate cut, 100 or at least a 50 basis point cut in rates,” said Venugopal Dhoot, chairman and managing director, Videocon Industries.
Harsh Mariwala, chairman and managing director, Marico, said: “RBI has cited supply-side factors for inflation remaining stubborn, and hence the need to not touch rates. But there appears to be a contradiction here. Not touching policy rates only hurts investment because cost of funds goes up. The problem of supply-side bottlenecks doesn’t go and with it inflation. So the purpose of not touching rates is not served. Instead I think the central bank should have slashed rates, that would have boosted sentiment. We need that right now.”
Little surprise then that the rate sensitive sectors — real estate, banking, auto — cracked in the stock market right after the policy announcements. “There is no issue of availability of funds but it is the cost of funds that is the problem,” said Pravin Shah, chief executive (automotive division), Mahindra & Mahindra.
“Though what RBI is saying is not incorrect, a rate cut would have given a positive message. Which is the need of the hour,” said Sajjan Jindal, Chairman and MD of JSW.
CEOs are seeking coordinated action from the government and the Reserve Bank to ease supply-side constraints and revive the competitive edge of India Inc. The common gripe is RBI is only looking to reduce headline inflation. But fuel and food are mainly contributing to this, which are predominantly due to structural bottlenecks. “We have been calling for a comprehensive strategy to revive the investment sentiment so that public and private capital expenditure, which has shown a drop in recent times, once again picks up in the infrastructure sectors,” said Ramesh Chandak, MD & CEO, KEC International. “While the central government needs to give a determined push to the stalled major infrastructure projects, including power, RBI should have reduced the cost of credit, which has not happened.”
The efforts to infuse additional liquidity through higher export refinance, too, has few takers as many feel that they are unlikely to be passed on to the industry sector. As of today, liquidity constraints is high on the retail side. So, companies that want to sell in the retail segment are not getting money at affordable interest rates. When the interest rate cut took place last time, banks did not reduce the base lending rate. So, for the industry, interest rates have remained high, even after the cut of 0.5 per cent last time.
“If rates don’t come down, I am little afraid the economy will go into recession in the next five-six months,” said Niranjan Hiranandani, co-founder of Hiranandani Group.
But there are some who would not blame RBI for the distress.
V Balakrishnan, CFO and member of the board, Infosys Limited, said: “The solution for India’s growth lies at the door of the government. The government needs to control fiscal deficit, reduce subsidies, improve FDI, encourage exports, improve climate for investment in infrastructure and bring in long delayed reforms in core industries. I don’t think the RBI has a magic wand for all of India’s problems. The ball is in the government’s court and the time to act is now.”
Rajeev Talwar, executive director, DLF, said: “The economy needs to be given a boost and that is expected to happen after the Presidential elections, when the Prime Minister holds the finance portfolio or an economist is the FM. So, we are waiting for a positive statement on policy measures and not a dress-up by RBI. RBI is simply cautious and waiting for the government in the new phase to take more proactive decisions for all sectors of the economy.”