The discouraging data on industrial production and exports have once again become an excuse for entrepreneurs to ask for an interest rate cut. That affects lending rates if banks are dependent on the RBI for funds. This is not the case now. The banking system is flooded with liquidity, augmented further by the cut in the cash reserve ratio. The bid-cover ratios for Treasury Bill auctions are at their highest in recent times. The repo transactions are a sign of the excess SLR (statutory liquidity ratio) securities of some banks — exploited by them for lending or for arbitrage profits in the call money market.
At the same time, there has been a steep depreciation of the rupee, which should help exports. If this has not happened, it’s because of the poor demand from the rest of the world. There is already an interest subvention for exports. The business community should understand that the problem is one of poor domestic demand aggravated by near double-digit inflation. Has industry done anything to promote research and development to reduce costs of production?
A Seshan Mumbai
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