India Inc wants more liquidity, rate cut

MUMBAI: Finally, India Inc will get a partial breather from the financial crisis which squeezed credit out of the system. Thanks to the Reserve Bank of India���s intervention, liquidity to the extent of Rs 60,000 crore will be injected into the financial system.

However, corporates wanting to execute large expansion plans and new projects are not sure as to what extent banks will loosen their purse strings.

Said Ajay Piramal, chairman, Piramal Healthcare, ���The cut in cash reserve ratio (CRR) will ease liquidity, but it is not enough. Companies, which have large expansion plans, will have to slow down. The availability and cost of funds will be a major issue here.������

No doubt, the CRR cut is in the right direction, but companies are waiting for the lending rates to come down.

���We are hopeful, but cannot say to what extent or if at all the bank rates will come down. Today, banks are lending to corporates at 15%+ levels, which is very high. The bank rate may come down moderately, to begin with, given that there is a genuine concern among banks regarding the current scenario," said D D Rathi, wholetime director and CFO, Grasim Industries.

An expectation of a cut in repo rate and reverse repo rate does not seem too unreasonable. Given the strong fundamentals, there is hope of overcoming the crisis, but more confidence boosting measures by the government are required, corporates said. For the busy season ahead, especially for sectors like textiles and sugar, funds will be needed.

According to Adi Godrej, chairman, Godrej group, the RBI needs to intervene to keep the rupee under check, say in the band of 40-43 to the US dollar. ���Inflation is well under control except for the inflationary effect of the rupee depreciation," said Godrej. Said Kewal Handa, MD, Pfizer: ���Apart from the monetary aspect, we need to boost demand in the manufacturing sector too."

As per the latest data, industrial production has slowed down to 1.3%, which is significantly lower than expectations and the lowest level seen since October 1998. Cumulatively, growth during April-August slowed to 4.9% as against 10% last year.

���Fundamentally, we don���t have the same problems as the US. Our exports to the US are just 15%. The risk is less. The government needs to strengthen the rupee which will attract more FDI and bring in more dollars," said Handa.