India Inc wary of high interest rate

May hit sales of houses and consumer durables, make loans for firms costlier

With the Reserve Bank of India (RBI) deciding to raise the policy rate, corporate India is a disappointed lot. It says the move would hit sales of houses and consumer durables and make loans for companies more expensive.

Harsh Goenka, chairman, RPG Enterprises, says, “We are not going to see great growth till inflation is controlled. The increase is along expected lines, and this has largely been factored in. So, we might not see an immediate reaction in commercial bank deposit and credit rates. But there might be another increase in the repo rate, and banks could react prior to that.” Harsh Mariwala, chairman & managing director, Marico, said the repo rate rise was on expected lines, owing to the fact that rising prices were hurting all. “Beyond a point, the central bank is not really in a position to do much, as long as supply-side bottlenecks aren’t corrected. And, till the time inflation doesn’t abate, it would continue to be the chief concern for RBI,” he added.

Others say the clamour for interest rate reduction or status quo might not really be justified when WPI-based inflation stands at about 6.5 per cent and its Consumer Price Index-based counterpart is about 10 per cent. “Higher inflation has a more destabilising effect on the economy compared to a marginally higher interest rate. Therefore, as a contrarian view, I would always favour an increase in the repo rate to bring down inflation, rather than expecting growth would bring unbridled inflation, only because the interest cost has been retained at the same level or reduced,” says Prabal Banerjee, president (international finance), Essar Group.

“Under all circumstances, I feel it is a misnomer if we think a cut of 50-100 basis points in interest rate would dramatically increase the growth of a benign economy such as India, which is heavily influenced by dollar liquidity in the system. I feel inflationary control is much more important for the economy as a whole, from an overall perspective, and interest rate rationalisation can wait for a little longer,” he added. R Shankar Raman, chief financial officer, L&T, said, “The market was expecting it. So, expectation management was done well. Sustained inflation cannot be ignored, but growth estimates are getting dropped with every review. Today, inflation correction is more of a wish than a definite road map. We need to find investment momentum to improve the supply side so that we can curb inflation and support growth.”

"The repo rate hike was on expected lines. Given the inflation, this was bound to happen. But beyond a point, the central bank is not really in a position to do much as long as supply-side bottlenecks are not corrected. The root cause of the inflation we are seeing is the latter. And till the time, it doesn't abate, it will continue to be the chief concern for the RBI." Harsh Mariwala, chairman & managing director, Marico

 

"We are not going to see great growth till the inflation is controlled. The increase is along expected line which has been largely factored in. So we may not see immediate reaction in commercial banks deposit and credit rates.  But there might be another increase in repo rate and banks could react prior to that." Harsh Goenka, Chairman, RPG Enterprises