The country's economy is projected to grow 7.2 per cent in financial year to March.Top business groups on Thursday urged Reserve Bank of India (RBI) to cut its benchmark interest rate by at least half a percentage point and lower cash reserve ratio it imposes on banks to stimulate an economy that is showing signs of weakness.
RBI Governor Shaktikanta Das, who took charge last month after sudden exit of Urjit Patel, was presented with requests when he met industry captains in Mumbai ahead of next monetary policy meeting on February 7."The need of hour is to have an accommodative monetary policy, focusing on growth," Sandip Somany, president of Federation of Indian Chambers of Commerce and Industry, told RBI governor, according to a statement from group which represents 250,000 companies, including top businesses.Another chamber, Confederation of Indian Industry (CII), said a 50-basis-point cut in both repo rate and cash reserve ratio would improve liquidity and reduce borrowing costs for small businesses.
The cut in reserve ratio is intended to encourage banks to lend more.The CII has about 9,000 major companies as its direct members plus about 300,000 small businesses as indirect members.The RBI's Monetary Policy Committee (MPC) kept repo rate unchanged last month at 6.50 per cent, and some economists say with retail inflation easing to an 18-month low of 2.19 per cent in December, it will have leeway to soften its monetary stance in next few months.
The cash reserve ratio is currently 4 per cent of deposits.Monetary policy should not target price stability alone but also economic growth and exchange rate stability, Mr Somany said in statement.
Many businesses in country are worried that a February 1 Budget, last in Prime Minister Narendra Modi's current term, could raise state spending on subsidies and increase borrowing, which could undermine private investment."The economy today is working on 2-1/2 cylinders, said Sunil Sinha, chief economist at India Ratings, part of Fitch Ratings, citing sluggish growth in trade, private investment and consumption.He said economy had potential to grow at around 8.5 per cent provided central bank and government take steps like lowering borrowing costs and corporate tax rates.The country's economy is projected to grow 7.2 per cent in financial year to March, faster than a provisional 6.7 per cent in 2017-2018.The inflation rate has dropped dramatically in past year from 5.07 per cent in January 2018, while industrial production fell to 0.5 per cent in November, lowest since June 2017.