RBI rate cuts provide no relief to India Inc

India Inc is reeling under a crushing interest burden of up to 14.75 per cent on its debt and does not expect the two minor cuts of 0.25 per cent each in key repo rates announced by the Reserve Bank of India (RBI) in recent months to lead to an easing in the cost of credit.

According to a latest survey carried out by Federation of Indian Chambers of Commerce and Industry (Ficci), ahead of the new credit policy announcement by RBI governor Raghuram Rajan on April 7, states that the cost of finance continues to be sticky.

Interest rate paid by the manufacturers ranges from 9.5 per cent to 14.75 per cent with average interest rate at around 12.2 per cent per annum, the survey reveals. As many as 58 per cent respondents reported availing credit at over 12 per cent average interest rates. Around 69 per cent respondents do not foresee any substantial increase in investment by their organisation as a result of the 0.5 per cent reduction in repo rates.

While the RBI has been claiming that the reduction in repo rates would lead to an easing of interest rates which in turn would lead to higher demand from consumers and increase in investment by corporate, this has not happened as the quantum of reduction is not being seen as sufficient enough by banks.

India Inc is of the view that with inflation based on wholesale prices falling into the negative zone and retail inflation also within the RBI's comfort zone of 5-5.5 per cent, there is a strong case for the RBI to go in for bigger slash in key interest rates instead of the "minor tinkering" it has been doing.

The economy is still going through a slowdown and high interest rates have emerged as a major factor in choking growth. Consumer demand has come down as sufficient jobs are not being created and loans are available only at very high rates of interest.

This has led to a decline in corporate investments which has slowed down the growth rate further. All eyes are now on Rajan, who has been sticking to rather hawkish tight money policy to control inflation with mediumterm growth in mind.

Both Prime Minister Narendra Modi and Union finance minister Arun Jailtley had met Rajan at the RBI function on Thursday.

Playing down the differences with the RBI on the monetary policy, both Modi and Jaitley had sent out the message that there is similarity in thinking on both sides on financial issues.

It now remains to be seen how far Rajan is willing to go on easing interest rates on Tuesday.

In its statement on monetary policy of January 15, the RBI reduced the policy repo rate by 0.25 per cent and indicated that the key to further easing of key rates are data that confirm continuing disinflationary pressures.