What India’s industry wants
As expected, the RBI cut the repo rate by 25 bps in a bid to stoke some investor fire into the country’s growth story—especially the industrial growth, which has been stuttering for some time. Indian industry grew by just 1.7 per cent last January after a 2.65 per cent growth in December and an abysmal 17-month low of just 0.5 per cent in November.
The country’s GDP growth was 6.6 per cent in the October-December 2018 quarter and is expected to be even lower at 6.4 per cent in the quarter that ended on 31 March 2019. However, with banks reluctant to pass on the rate cut, it seems unlikely that there will be a rush among private investors and consumers to borrow money to set up factories, buy homes or even cars. Automobile sales between April 2018 and
February 2019 have shown a growth of just 3.3 per cent compared to 8 per cent the previous year.
No wonder the industry has been seeking rate cuts of at least half a per cent every time RBI starts pondering about the country’s monetary policy. Driblets of rate cuts are helpful in pushing down India Inc.’s interest pay-out costs, but do not seem to enthuse the country’s entrepreneurs and consumers to take enough big-ticket investment decisions.
According to the World Bank’s estimates, global growth too is expected to slow to 2.9 per cent in 2019. “International trade and investment are moderating, trade tensions remain elevated, and financing conditions are tightening. Amid recent episodes of financial stress, growth in emerging market and developing economies has lost momentum,” the Bank says in its Global Economic Prospects.
With some 41 per cent of the country’s GDP growth accounted for by foreign trade, a slowdown in global growth again spells bad news for large swathes of India’s industry—ranging from textiles to diamonds to engineering.
If inflation continues its moderate stance, perhaps the central bank would do well to read the tea leaves of India’s growth saga better and decide in favour of a larger rate cut in June when it sits down once again to decide on the future course of the monetary policy.