Cut rate for facilitating investment cycle

The relevance of the monetary policy is increasing by the day so as to integrate our policy direction in tune with the complexities of the current global economy. Apart from statutory liquidity ratio, cash reserve ratio, repo and reverse repo, the Reserve Bank of India (RBI) will have to play an elevated role for price stability of commodities and currency parity to stabilise foreign trade for India.

With an almost normal monsoon prediction and sufficient food stock to prevent a price spiral, rural demand should be healthy in the festival and winter season across the country. To exploit this demand, availability of credit at affordable rates will be a necessity. By nurturing this demand, we should be able to elevate the capacity utilisation in fast-moving consumer goods, durables, white-goods and automobiles.

Increased capacity utilisation can then lead to brown field and green field capacity creation. To enable initiation of an investment cycle RBI should facilitate this entire process by lowering the interest rate to a single digit progressively in the next few months.

Since the domestic demand pick-up rate is not expected to accelerate at a faster pace, India will need to compensate this gap by enhancing its foreign trade. Depreciation of the euro and the Japanese yen has substantially increased the competitive strength of the manufacturers from these geographies. To combat this new credible competition in the international market place, Indian exporters are looking forward to a policy support by way of interest parity - only for exports - both at working capital level and capital expenditure level. The Indian banking system should also be allowed to borrow in the international markets, to extend suppliers credit facility for global customers of Indian companies, at par with the Japanese, Chinese and European bankers.

The author is managing director and chief executive officer of Thermax Limited. The views expressed are personal