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Even as India Inc leaders acknowledge that the Reserve Bank of India's (RBI) decision to keep the policy rates unchanged is due to steep depreciation of the rupee that could push up inflation, the CEOs are a disappointed lot.
The corporate sector was seeking a cut in interest rates. According to India Inc leaders, a cut in rates is essential to infuse positive sentiment into the market. They feel RBI's decision to not cut rates is biased towards controlling inflation rather than stimulating growth.
In its monetary policy review today, RBI chose not to reduce the key policy rates in view of high food inflation, a depreciating rupee and global uncertainty. (What prompted RBI to maintain status quo)
"RBI's monetary policy is a disappointment. It is another lost opportunity. RBI has maintained that it wants to balance growth and inflation. With the headline inflation down, the industry was expecting a new policy direction from RBI and reduction in interest rates. With RBI keeping rates unchanged, the investment cycle will get postponed. As we are in the capital goods sector, we are dependent on capacity building by other industries and order inflows, too, may get impacted," says M S Unnikrishnan, managing director of Thermax Ltd.
Other CEOs agree. "Today, companies are increasingly looking for more working capital, caused by a tight liquidity cycle and extended credit periods. Thus, there has to be an initiative towards bringing in more liquidity into the market," says Seshagiri Rao, group chief financial officer (CFO) and joint managing director at JSW Steel.
The corporate sector's finance costs have shot up substantially in the past three years, with many top companies struggling to manage debt. With no respite from the central bank today, CFOs say interest costs will remain high in the near term.
"Rates are high and we were expecting a rate cut either in CRR (cash reserve ratio) or the repo rate so that liquidity can increase, but there are no such changes. This will have an impact on my interest cost," says P K Goyal, director (finance) at Indian Oil Corporation.
Others echo the same view. "I was expecting an interest rate cut, which has been long due. There has, however, been no change. This will continue to impact our interest cost," says Suresh Jain, CFO, Essar Oil.
Going forward, inflation and current account deficit would determine the policy stance, say India Inc leaders. Currently, industry doesn't enjoy pricing power due to lack of demand. Demand pick-up can happen only if liquidity is infused and interest rates are made affordable to borrowers.
However, according to real estate players such as Unitech, the RBI policy was on expected lines. R Nagaraju, vice-president (corporate planning) at Unitech, says: "No one expected RBI to cut rates given rupee depreciation."
