RBI should go for at least 100 bps rate cuts: MS Unnikrishnan, Thermax Ltd

In an interview with ET Now, MS Unnikrishnan, MD, Thermax Ltd, shares his views on the latest IIP numbers. Excerpts:

ET Now: How would you react to the capital goods figure?

MS Unnikrishnan: It is more like an American, European or Japanese capital goods number. India seems to be moving similar to the developed nations in terms of the IIP for capital goods. However, what we need to consider is not just the number itself, but what it actually means. What is basically implies is that capital goods are building sufficient capacity for the country.

Capital goods have now become an important aspect of economic growth. Therefore, if we want to have consumer goods growth in 2014-2015, we should start creating capacities right away -- which is a matter of concern. Currently, there is very little positivity about the industry, and nobody wants to finalise orders. The ramifications of this are likely to be adverse for the country.

ET Now: What can we expect from the RBI, given the state of the currency and inflation? Moreover, there has been no heavy lifting on the fiscal deficit front from the government either. Do you think the RBI should not indulge in monetary loosening as of now?

MS Unnikrishnan: They have to because there has been de-growth in investment and capital formation for almost one full calendar year. If you want to buck up the sentiments of investment in the country, one indicator the RBI should focus on is the base rate, which has been contained for a while and should be brought back to an investible rate. I believe that if credit is available at around 10%, many projects may become viable and consumption can catch on. Therefore, RBI cannot utilise the monetary policy alone as inflation control as it will not control the consumption. I certainly recommend that RBI should intervene and reduce the interest rates by at least 100 basis points across one or two instances. Doing so will be a positive indicator for the markets and encourage investment.
That being said, the government has only been sending verbal messages for a while, which hold no significance anymore. What we need right now is action on the ground level. I am not very sure that there is a political leadership in this country which is capable of taking the tough decisions needed to recover and reshape the economy. And since RBI is an independent entity, they have the right and the capacity to initiate some positive action.