Govt should now try to clear structural problems

A quarter per cent rate cut isn’t the thunderbolt that can resurrect India’s sagging fortunes. Private investment is constrained not due to banks’ inability to lend, but because of their unwillingness
Updated on
1 min read

MUMBAI/CHENNAI:A quarter per cent rate cut isn’t the thunderbolt that can resurrect India’s sagging fortunes. Private investment is constrained not due to banks’ inability to lend, but because of their unwillingness.

Large corporates and banks are in a pickle, driven by ‘crazy lending’ between 2009 and 2013. The debt overhang reached dire proportions, still banks threw caution to wind, ever-greening loans, until the regulator cracked the whip in late 2015.

For the past few years, the central bank has been trying to clean-up the twin-balance sheet problem, without much success. Despite rate cuts, corporates continue to put investments and expansion on ice citing steep rates. But those looking behind the scenes are aware of their over-leveraged situation. Take for instance the telecom sector that now gives a next-to-nothing 1 per cent return on investment,  much lower than the savings bank account’s 4 per cent.

RBI hopes capacity utilisation, profit margins and employment will improve with new export orders and future output index rising. But if 175 bps since 2015 couldn’t resume the runway train of investments, how much Wednesday’s 25 bps can revive capex flow is anybody’s guess.
The onus is now on the government — to clear structural problems — and private enterprises to find their way to goose the economy.

Related Stories

No stories found.

X
The New Indian Express
www.newindianexpress.com