CRR can't be a monetary tool: Seshagiri Rao
Industry has been going through a phase of high interest rates, declining demand and insufficient working capital
It is unfortunate that the Reserve Bank of India (RBI) has not changed the policy rate in spite of several data points such as lower industrial production, slow credit growth and dwindling investments showing absolutely disappointing trends.
When the banks are borrowing in excess of Rs 75,000 crore under the repo window from RBI, a CRR cut of 0.25 per cent (Rs 17,500 crore) doesn’t really change the liquidity situation in the money market, thus helping to ease the interest rates. CRR is being used as monetary tool instead of liquidity tool.
Indian industry has been going through a painful phase of high interest rates, declining demand and insufficient availability of working capital.
The puzzle, however, remains how the inflation is inching up structurally with virtually no pricing power with the industry. The industry is not able to pass on even the cost due to inflationary impact.
It clearly establishes that the high cost of goods and services are due to constraints attributable to expensive supply side logistics. The profitability of industry is under stress. This requires to be addressed by encouraging investments in the supply side infrastructure, rather than squeezing the investment demand with unaffordable interest rates.
Seshagiri Rao
Joint Managing Director and Group CFO, JSW Steel