Industry feels let down again by RBI holding rates steady

Industry associations have, again, expressed disappointment after the Reserve Bank of India kept interest rates steady. India’s central banker, however, cut the cash reserve ratio (CRR) by a quarter of a percentage point to help ease more money for banks to lend.

The RBI has, for several quarters, shown more concern about high prices, and attempted to bring them down by controlling the flow of money into the economy. The industry, on the other hand, have been seeking more loans, claiming that the cut-off may lead to a drastic cut down in economic growth.

“The industry is disappointed that the key policy rate, the repo rate, has not been reduced and rather all through, the focus continues to be on managing inflation with the growth continues to suffer,” Rajkumar Dhoot, president of Assocham, a trade chamber, said.

The Assocham said “the experiment” over the last two years to hike the interest rates to contain inflation has not delivered the desired results. “Yet the consequential impact has been slowdown in the growth momentum, with increasing cost of finance hampering investments,” it said.

India’s industrial growth has slowed down to about 2.5%, about a third of where it should be according to official targets.

“RBI should reconsider its decision as the recent ASSOCHAM study on MSMEs has revealed that more than 25% of the units employing lacs of workers, are struggling for survival,” Dhoot added.

The central government has recently announced a road-map on fiscal consolidation. It also passed several pending reform measures recently.

Dhoot also questioned the growing level of dead loans in the banking sector which in the long term are likely to shoot up in the small business sector and several others like real estate.

“This will have a very adverse impact on inflation. Therefore there is no reason for holding back the lending rate cut any more,” he said.