Industry well placed to ride any RBI policy rate hike: CII President

The buzz about Reserve Bank of India raising interest rates to tame inflation is getting stronger with the CII President TV Narendran on Monday asserting that Corporate India’s balance sheets have been repaired adequately to continue with their investment plans even in the event of cost of money going up.

The CII President’s remark came on a day when former RBI Governor Raghuram Rajan too highlighted that the central bank would have to raise interest rates as inflation is up in India. Consumer price inflation has recently seen a spike beyond the RBI’s comfort zone of 6 per cent at the upper end of the inflation targeting range. According to T V Narendran, the industry is well prepared for this eventuality.

“Industry has been preparing for this for sometime. It was expected that the interest rate will go up at some point in time and inflationary pressures will make it important for RBI to take action. We are expecting RBI to take that action. But I feel that balance sheets of Corporate India have been repaired quite significantly. That will help corporates continue with their investment plans even if the cost of money is going up and demand is strong in India. Profitability has been good for many industries. Capacity utilisation has been strong and I don’t see it (policy rate hike) as something derailing investment plans,” Narendran told BusinessLine in an exclusive interview.

Narendran highlighted that several capital intensive sectors and leveraged corporate houses had already deleveraged and prepared their balance sheets for next round of investment led growth. Given the inflationary impact and likely interest rate hike in the financial system besides the geopolitical tension caused by Russia-Ukraine conflict, CII had toned down its economic growth forecast to 7.5-8 per cent from 8.5-9.5 per cent projected earlier. “There is enough reason to be positive but we thought let us correct it without over correcting it.”

Rajan’s prediction

In a LinkedIn post, Raghuram Rajan said RBI will have to follow the global trend of rate cycle reversal.

“It is important to remember that the war against inflation is never over. Inflation is up in India. At some point, the RBI will have to raise rates, like the rest of the world is doing. At such times, politicians and bureaucrats have to understand that the rise in policy rates is not some anti-national activity benefiting foreign investors, but is an investment in economic stability, whose greatest beneficiary is the Indian citizen… My experience as the last RBI Governor who had to fight high inflation bares this out,” said Rajan.

Raghuram Rajan, Former Governor, RBI | Photo Credit: BIJOY GHOSH

Rajan signed off his note, in which he detailed his experience in combating inflation while stabilising the economy and the rupee, by saying it is “essential that the RBI does what it needs to, and the broader polity gives it the latitude to do so”.

Metals to lead private investments

Meanwhile, the CII President asserted that major private investments will be driven by metal and mining sector. “Recovery of private sector investments in India is going to be led by metals. Private sector investment is coming back in metals and chemicals”, he added. About ₹2-lakh crore worth of investments have been lined up by metal sector alone in next few years.

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