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After Repo Rate Cut, Ball in Government’s Court

Published: 17th January 2015 06:00 AM  |   Last Updated: 17th January 2015 06:13 AM   |  A+A-

The Reserve Bank of India’s decision to reduce its loan rate by a quarter per cent to 7.75 per cent may be considered too little too late. This is because such an intervention should have occurred a long time ago. An immediate fallout of the decision is that the interest rates at which banks advance loans to businessmen, house-builders and, hopefully, students will fall by at least a quarter per cent. However, the hopes have been higher, particularly with the crude oil prices plummeting to the lowest in a few decades. Those in trade and commerce wanted a drastic cut in the interest rates, though it would have added to inflation.

The bank seems to have been guided all along by the desire to contain inflation which, at 5 per cent, remains not very low. What is significant is that the Central bank has succeeded in its bid to soften the inflationary pressures on the economy. Yes, inflation has been brought under control. All the same, it should be admitted that the bank can play only a limited role in economic management. It is now for the Modi government to deliver. That it is on the right track is borne out by the fact that the manufacturing sector is on the rebound and the nation would end the fiscal with a growth rate of 6 per cent, unimaginably high by Western standards.

The budget due next year will be the first full-fledged since the BJP came to power. It provides the government an opportunity to fulfil its promise that the economy would be  allowed to spring forward by freeing it from government regulation and taxation. The ordinance promulgated to make acquisition of land easier is just one step. Another is the increase in the limit on foreign direct investment in the insurance sector. It is the sad state of infrastructure like communication and power that dissuades many to “make in India”. Easier credit has to be augmented with easier ways of doing business to stimulate growth, which alone can address the needs of the growing population.



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