Rate cut impact: Corporate India wants more rate cuts

Though CEOs questioned the size of the cut, the consensus is that Rajan is moving in the right direction

Enthusiastic corporate bosses are clamouring for more, after the Reserve Bank of India cut interest rates by a quarter of a percentage point on Thursday. chief executive officers said it was time for the RBI to lower rates by another two to three per cent so that they could start new projects.

"This (rate cut) will lead to increased investment and demand for housing, automobiles and consumer durables, which are financed by banks. We, however, need a further rate reduction of three percentage points during the year," said Adi Godrej, chairman, Godrej Group.

Sajjan Jindal, chairman of the JSW group, said the global economy was slowing due to the commodities crash and domestic demand needed to be propped by interest rate cuts. "This cut is indeed a good step," he said.

Though CEOs questioned the size of the cut, the consensus is that RBI Governor Raghuram Rajan is moving in the right direction. "Three cheers! The governor has moved from being 'Reluctant Raghu' to 'Rate-cut Raghu!'," tweeted Anand Mahindra, chairman of Mahindra Group.

Big beneficiaries of rate cut will be housing and automobile companies that have seen slow sales in the recent quarters and infrastructure firms unable to start new projects due to high interest. "This is a good development. An easing rate stance will help revive businesses that are sensitive to interest rate movements apart from improving the general sentiment," said R Shankar Raman, chief financial officer of engineering and construction major Larsen & Toubro.

"The cut was long overdue. However, it is not adequate, given that oil prices are falling, the WPI (wholesale price index) is at zero, the CPI (consumer price index) is at five per cent or lower, and the CAD (current account deficit) is low. This makes a good case for reducing the repo rate by another 25 basis points (a basis point is a hundredth of a percentage point) if not more in February," said Ravi Uppal, managing director and chief executive officer of Jindal Steel and Power.

"Such rate cuts might not necessarily lead to a rush of investments because idle capacity has to be filled and demand has to be pushed for further investments. But it is the most positive step taken recently and we welcome it," said Prabal Banerjee, president, international finance, at the Essar group.

"I see this as a step in the right direction. But a 25 basis point cut might not be enough to spur the investment cycle," said Harsh Mariwala, chairman of consumer goods company Marico. "There will have to be more cuts, lending rates have to come down by at least one or two percentage points to get investment going," he said.

Venugopal Dhoot, chairman of consumer goods company Videocon Industries, said the direction in which interest rates would move was of interest. "This shows inflation will be under control and all other economic parameters are also showing sustained improvement," he added.

Real estate companies said they would launch new projects. "Hopefully, banks will pass on the cut to home buyers. It will lead to more launches in the real estate sector and projects will be completed on time," said Rajeev Talwar, executive director, DLF.