Right medicine just in time, says India Inc on 50 bps rate cut by RBI

MUMBAI:Captains of Indian industry expect RBI chairman Raghuram Rajan’s decision to cut the policy rate to a four-year low to provide an impetus to economic growth, attract investments, ease the debt burden of power and road developers and help boost demand for capital goods. “Bravo Raghu! The right medicine just in time,” Mahindra & Mahindra chairman Anand Mahindra tweeted soon after the policy announcement. “A 50 basis points cut is the right signal to markets and consumers and should boost consumption.”

Debt-laden companies said this would lead to big savings in interest payments for them. Factory utilisation of many companies has been around 70% with lower consumer demand and heavy interest cost hitting revenue and profit. Executives said they expect commercial banks to cut lending rates and save interest costs for borrowers, primarily companies that build power plants, roads and airports. Lower rates could push consumers to buy houses, consumer goods and travel, helping revive economic growth. “Banks need to lower their cost of deposits and standing in the way are rates on public small savings schemes,” Mahindra said.

Steel to cement maker JSW Group, which is aggressively building a portfolio of power plants, said the decision will boost both markets and the economy. Steel companies have been stressed with lower demand and cheap imports.

“The logical extension would be for banks to pass on rate cuts so as to supplement investments,” said JSW Group chairman Sajjan Jindal. “With reverse repo (rate at which central bank borrows from commercial banks) down to 5.75%, banks should now be motivated to lend rather than sit on their money.” Nonetheless, analysts said the economic slowdown in China and a possible depreciation of the rupee could still affect metal makers and miners adversely.