Cut provides boost to economy: Ravi Uppal

During the last three years, RBI, while keeping a hawk's eye on inflation, had eased lending rates and liquidity norms progressively, but cautiously

The Reserve Bank of India (RBI), by reducing the repo rate and maintaining status quo on liquidity instruments, has done its due to give further stimulus to the economy.

During the past three years, RBI, while keeping a hawk's eye on inflation, had eased lending rates and liquidity norms progressively, but cautiously. These measures, which maintain continuity and consistency, would certainly go a long way to create an all-round confidence in the government as well as RBI's policies.

However, the benefit of declining rates and ease of liquidity has not reached the largest borrowers from commercial banks, namely, the core sector industries and infrastructure segments which account for Rs 13 lakh crore ($ 1.7 trillion) of bank borrowing. The lending rates to these vital and prime-mover sectors still remain in double digits and are a major impediment to their economic recovery. In most cases, the financing costs account for 10-20 per cent of their revenue and over 50 per cent plus Ebitda, thus leaving little room for their financial recovery, let alone generate any resources for future investments.

RBI has been constantly urging commercial banks to transmit the benefit of lower borrowing costs and enhanced liquidity to these stressed sectors of economy but it needs to do a lot more with a sense of urgency. The credit offtake during the last two years has not grown much and the main reason for that is the sluggish growth of these sectors.

RBI has announced several schemes, including SDR, 5/25 and S4A to alleviate the financial logjam facing the core and infrastructure industries, but the action at the ground level is too little and slow. The government instead of running these optional schemes may consider a single plan combining the best of all these. RBI may also consider setting up a separate financial bank which could meet the capital expenditure and working capital needs of the capital intensive industries on repo rate and basis to bring a fresh stimulus for their growth.

India surely aspires and has the wherewithal to grow at 8 per cent but it has to tailor its approach to the needs of every major sector in the economy.

Ravi Uppal
MD & Group CEO, Jindal Steel and Power