The Finance Ministry said the Reserve Bank’s move to cut repo rate by 25 basis points is consistent with the trend in the economy, but India Inc begged to differ, saying it is not enough to pump up the economy.
Welcoming the third rate cut since January, Chief Economic Adviser Arvind Subramanian said the cut is consistent with the trend in the economy, including strongly declining inflation, contained current account deficit and strong fiscal discipline. “The government and the RBI agree that the cut signifies that the economy needs policy support as economic growth is recovering while the external environment remains weak,” he said.
He also said that the government and the RBI will work together to ensure that the macroeconomic situation remains strong while investment and growth are accelerated. He was hopeful of containing inflation despite rainfall being estimated to be below normal.
“Last year too the monsoon was not very good and through government policy we managed to contain inflation and we intend to do that this time around should the monsoon be as bad as some people fear,” he said.
FICCI President Jyotsna Suri said given the current situation, the RBI could have considered a deeper cut in repo rate by 50 bps. “As RBI’s own prognosis shows, industrial growth has been recovering, albeit unevenly. The slowdown in consumption demand and the still weak investment cycle has taken a toll on the industrial sector. The same is also reflected in the low credit offtake and the sluggish quarterly corporate results announced recently,” she said.
Reminding the government of its effort to better its own fiscal deficit target to 4 per cent from 4.1 per cent, CII Director-General Chandrajit Banerjee said it is important that the monetary levers also work in tandem to support the growth crusade, especially as inflation is very much under control. “We also hope that the banks would transmit the rate cut onwards so that credit offtake in the economy improves,” he said.
Echoing similar views, President of Federation of Indian Export Organisations, SC Ralhan, said the RBI has gone for a token rate cut of 25 basis points, the third since January, and “we hope that this would, this time, translate into an actual cut in cost of credit, given the poor offtake which has fallen to 9.9 per cent from 13 per cent in the corresponding period last year.”