RBI FINALLY WAKES UP TO DECLINING GDP GROWTH

The Reserve Bank of India seems to have finally woken up to the all-pervading economic slowdown though it is still under the misconceived notion that mere lowering of interest rates will result in the revival of the economy. The CPI and other left parties have focussed on the inefficacy of this claim. They are certain that that however hard the RBI and its present governor try and bring down the repo rate to zero level, private investments and thereby revival of growth will not come into effect. Corporate houses everywhere in the world are pathologically inclined to reap profits at minimum risk level. Zero rates, of course, will be made use of fully by them to amass cheap funds to pay off old debts or lay foundation for more profitable new ventures or in accumulating more tangible assets. The central bank is only hoping against hope that economic revival will take place sans consumer spending.

One in fact finds that something is nauseating at the corridors of power or at the boards where emissaries of power rule the roost and play second fiddle to the mandarins of North and South Blocks in the national capital that house decisive power centres. The unconventionally low spirits seen in the markets reflecting the same on the faces of buyers in the festivals’ month of October establishes the fact that unless money is put into the hands of consumers, growth per se is not at all possible.

Substantiating further the scepticism over the remedial effect of rate cuts, banker S S Mallikarjuna Rao who moved to Punjab National Bank last week as its CMD has in an interview observed: “Interest rate reduction for advances can’t be a panacea for the economy. There is a limit below which you can’t reduce rates. Repo rate has come down to the lowest level in the last nine to 10 years and there is an indication that it may reduce further. In our country, if deposit rates go below six per cent, there will be social uneasiness as many senior citizens depend on the interest income. If alternative investments are available, principal is not always assured. So, we need to ensure interest rates are not very low.” Poo-pooing the claim that a rise in the profitability of companies following the cut in corporate tax rates will lead to an uptick in private sector-led investment, a study conducted immediately after the tax cut point out that lack of funds is not really a deterrent to fresh investment. It observes to the amusement of all concerned that BSE 500 companies had cash and cash equivalent of around Rs 8 lakh crore as of March 2019 and still they have been holding on to their cash and not investing. It has to be noted here that private investment in the economy has stood very low over the last few years. Is it a case of the left hand not knowing what the right hand is doing? The very consumer sentiment survey for September conducted by RBI itself finds that consumer confidence dipped to six-year low as sentiment around employment, income and discretionary spending declined. The consumer confidence has weakened in September, with both the current situation index and the future expectations index recording declines. Also the sentiment for overall economy and employment declined and people were seen less optimistic about their income over the year ahead. (IPA Service)