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India Inc bats for a rate cut in RBI's next policy

November 06, 2014 10:40 IST

Image: India Inc hopes for a rate cut in RBI's next monetary policy. Photograph: Adnan Abidi/Reuters

India Inc on Wednesday pitched for a rate cut by the Reserve Bank of India (RBI), saying the central bank should be “more courageous”, since inflation had come down drastically and growth is not picking up.

RBI is slated to come out with its policy review on December 2. “RBI has to be more courageous,” said Anand Mahindra, chairman and managing director of Mahindra & Mahindra, at a session during the India Economic Summit, organised by the World Economic Forum and the Confederation of Indian Industry (CII), on Wednesday.

Mahindra said RBI Governor Raghuram Rajan had told him he was more concerned about core inflation than the headline number.

However, core inflation has also come down to only a little over five per cent in retail price index terms, Mahindra added.

He noted in the past the central bank was unable to bring down the rate due to high inflation.

“The need of the hour has changed and it is time to start looking to support growth,” Mahindra said.

Harvard University professor Gita Gopinath said it was not a question of being courageous.

She, however, agreed there was an environment for interest rates to be brought down since inflationary expectations had.

She favoured RBI policy till now, since there is a tendency in India for food inflation to become generalised. Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank, said: “My view is RBI should be considering a repo rate cut between December (2014) and February (2015).”

He said there are a large number of “schooled” people in the country but not “educated”.

“I am ashamed to say that both my children studied under-graduation courses overseas because we felt it was better for them,” said Kotak, according to a PTI report.

Ajit Gulabchand, chairman and managing director of Hindustan Construction Company, said interest rates were too high and hurting investments.

Rahul Bajaj, chairman of Bajaj Auto, said it was RBI’s prerogative to take a call on interest rates and he would not like to comment on it.

However, CII president Ajay Shriram said effecting half a percentage cut in the interest rate would improve investment sentiment.

Inflation, both in terms of Wholesale Price Index (WPI) and Consumer Price Index (CPI), has been declining in recent months.

WPI inflation touched a five-year low of 2.38 per cent in September, while the rate of rise on the basis of CPI fell to its lowest level of 6.46 per cent in the month. RBI has set a target of controlling CPI inflation at eight per cent by January 2015 and six per cent a year later.

It is the six per cent target RBI is more concerned about.

However, industrial growth declined to below one per cent in July and August, which could have repercussions for economic growth in the second quarter of the current financial year.

The growth increased to a two-year high of 5.7 per cent in the first quarter. Rajan has withstood pressures from several quarters for cutting the repo rate. This is despite five of the seven members of the technical advisory committee of RBI seeking an interest rate cut during its September meeting.

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