Rate cut in right direction, but India Inc wants more

Say 25 bps cut will not make much difference to capex plans, won't improve sentiment

The Reserve Bank of India’s move to cut the repo rate by 25 basis points has not impressed India Inc leaders who were expecting an at least 50 bps cut from the central bank to kickstart corporate investments.  While the rate cut is on the right direction, it would not make much difference to their capex plans, they said.
 
“In today's environment, where there is virtually no investment taking place by private sector and marginal investment by public sector, a big boost would have happened if the rate cut was in the area of 50 bps at least , if not higher. The 25 bps cut was expected anyway and hence, this will not improve sentiment at all, which we badly want,” said Prabal Banerjee, Group CFO, Bajaj Group.

 
The corporate sector cannot think of investing further when there is surplus capacity and they are paying 12% to 13% of interest in today's environment and this, CEOs said, has to come down. “While inflation is benign today, possibly, this was the best time to give a required impetus to industry and market. Personally, I do hope that RBI will do some mid-term cut as there is already some precedence even without waiting for another policy date,” Banerjee added.
 

The promoter of a large company said they will not invest in the fiscal starting April 1 as there is excess capacity in the system. “The demand is not picking up and our capacity utilization is around 70%. Till the demand picks up, we are not planning to press the pedal on investments,” he said, asking not to be quoted. Infrastructure companies like cement and steel are expected to grow by 5-6% mainly backed by expectations of government spending picking up in the current fiscal.

 
According to rating firm Ind Ra, the investment will remain muted in fiscal 2017 after recording negative growth in FY15 and a marginal uptick in FY16, which ended on March 31. In fact, the capex spending of the top 500 corporate entities, after hitting the peak of Rs 3.1 lakh crore in FY11, has kept falling, as high finance cost ate into corporate profits. The capacity utilisation of manufacturing companies is down 20% from its peak.