India's real rate of interest at 10 year high: PHD Chamber

With the significant decline in WPI inflation vis-a-vis decline in international commodity prices coupled with reforms at domestic front, our real rate of interest has reached to a decadal high, said Shri Alok B. Shriram, President, PHD Chamber of Commerce and Industry.

In order to rejuvenate the demand scenario and reduce the costs of doing business, PHD Chamber urges RBI to reduce repo rate by at least 50 basis points from 7.25% to 6.75% in the forthcoming Third Bi-monthly Monetary Policy statement for 2015-16 scheduled on August 4, 2015.

Presently, the real rate of interest in India based on Headline inflation (WPI) stands at 9.6%, which is the highest since FY2006. The real rate of interest stood at about 2% in FY2006, around 3% in FY2008, (-) 0.9% in FY2009, (-) 3.6% in FY2011 and scaled upto 5.6% in FY2015.

India's boats of highest real rate of interest among major emerging market and developing economies which stands at 6.2% in 2014 as compared with Thailand (5.4%), Vietnam (4.8%), China (4.7%), Russia (3.7%), South Africa (3.1%), Sri Lanka (2.6%), Philippines (2.3%) and Malaysia (2.3%), said Mr. Shriram.

High interest rate environment makes the business environment tougher and impact the balance sheets and future investment sentiments, he added.

The role of corporate investments is critical for any economy to generate higher employment opportunities, expand production possibilities and economic growth.

Revival of India's growth is well recognized by various international organizations such as IMF, World Bank, United Nations, among others, however, the industrial sector is still not growing in a comfortable trajectory, as the sector is witnessing various impediments to growth, the most crucial being the high interest rates, he added.

Though industrial growth (IIP) is estimated at 3% in April-May 2015-16, the growth of consumer durables is in the negative trajectory at (-)1.4% during the same period due to the sluggish demand scenario across the urban and rural segments.

India's export sector has shown a negative growth trend. Therefore, cut in repo rate will not only reduce the costs of doing business but also enhance our exporters' competitiveness in the international markets, he said.

Several external and internal factors have been observed responsible for slowdown in exports. A wide disparity in terms of interest rates in India and its competitors dilute the sentiments for exports and export competitiveness in international markets, said Mr. Shriram.

Going ahead, we believe soft monetary policy stance will induce demand, re-capture industrial growth, improve exports performance and boost overall economic growth, said Mr. Shriram.

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