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Corporate India, which has been clamouring for a rate cut, may have been disappointed with the RBI but Governor Raghuram Rajan had a strong message: don’t take a short-term view. Terming corporate India’s belief that the RBI is not concerned about growth as a “misconception,” Rajan said corporates should instead manage their risk profiles better.
“I think it is very short-sighted when people comment that you are not helping growth this quarter. We are not talking about quarters, we are talking about years of sustainable growth.
In order to get that, you have to fight inflation, beat it and then you can get the sustainable growth. I think that is a message that needs to seep through,” Rajan said.
Industry demandsAfter the latest provisional reading suggested that growth moderated to 5.3 per cent in the July-September quarter, from 5.7 in the preceding quarter, the rate-cut chorus among industry participants grew louder. Industry body CII (Confederation of Indian Industry) even expressed disappointment after the RBI status quo on policy rates.
In a written statement, it said, “CII feels that at this juncture, even a symbolic cut in policy rates would have sent a strong signal down the line that both the Government and the RBI are acting in concert to harness demand and take the economy to the higher orbit of growth.
“Industry was particularly hopeful of a rate cut… A rate cut would have propelled investment demand, spurred spending in rate sensitive consumer durables and given a fillip to construction activity.” Rajan said that corporate India should not blame the RBI because of the higher borrowing costs in the market.
“The immense risk premium that is being demanded of some corporates is because of the state of their leverage, the risks they have taken and their unwillingness or their inability to repay should not be attributed to the RBI,” Rajan added.
He added that by bringing down expectations of inflation, the bond yields have come down by 60-70 basis points since July.
“That is a fall in borrowing rates. Short-term rates have come down. These are the positives for corporate India,” he pointed out.
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