It is unfortunate that RBI has not changed the policy rate in spite of several data points, viz; lower industrial production, slow credit growth, dwindling investments show absolutely disappointing trends. When the banks are borrowing in excess of Rs.75000 crores under Repo window from RBI, the cut of 0.25% (Rs. 17500 crores) in CRR is not giving any material change in the liquidity situation in the money market thus helping to ease the interest rates. CRR is being used as monetary tool instead of liquidity tool.
Indian industry has been going through a painful phase of high interest rates, declining demand and insufficient availability of working capital. The puzzle however remains how the inflation is inching up structurally with virtually no pricing power with the industry. The industry is not able to pass on even the cost due to inflationary impact.
It clearly establishes that the high cost of goods and services are due to constraints attributable to expensive supply side logistics. The profitability of industry is under squeeze and stress. This requires to be addressed by encouraging investments in the supply side infrastructure rather than squeezing the investment demand with un-affordable interest rates.
