Measures fail to enthuse industry

The Reserve Bank of India’s (RBI) measures to cut benchmark interest rates by 100 basis points may fail to spur demand in the economy.

Leading industry lobby Federation of Indian Chambers of Commerce and Industry (Ficci) said the rollback needs to be to the 2004 levels.

“It is clear that to restart the economic momentum, the accompanying fiscal steps are critical and we will wait to see them unfold tomorrow,” said Rajeev Chandrasekhar, president, Ficci.

The repo rate was reduced to 6 per cent in March 2004 from 7 per cent, while the reverse repo rate was increased by 25 basis points to 4.75 per cent in October 2004. After the latest reduction, repo and reverse repo rates are at 6.5 per cent and 5 per cent respectively.

However, T S Rangan, chief financial officer, Strides Arcolab, a Bangalore-based pharmaceutical company, said there was adequate liquidity in the banking system, but additional measures were required to boost the confidence to lend.

“Until banks get the confidence to go ahead and lend, these measures will not be adequate enough for the economy to improve,” he said.

The infrastructure sector, which was left out of the RBI-mandated stimulus package, does not foresee any change in the level of economic activity.

“It is only a feel-good factor. It would not be effective in terms of revival of the economy. There is no direct fiscal stimulus to the infrastructure sector,” said E Sudhir Reddy, the chairman and managing director of Hyderabad-based IVRCL Infrastructure & Projects.

Adi Godrej, the chairman of the Mumbai-based Godrej group, said the repo and reverse repo would have been cut by 150 basis points each in the wake of falling inflation. However, the move will ease the credit situation in the country. Real estate and non-banking finance companies will be the major beneficiaries of the RBI move.