India expects new RBI chief to spur growth
Government feels that the monetary policy should facilitate its growth agenda, preferably by bringing the interest rates down.
where. They claim that higher cost of money is one of the biggest constraints crippling their (business) expansion plans without which they cannot create jobs. In the same breath, they also admit that it is the subdued demand in the economy which is pulling them back from settingup more factories or expanding their existing ones. Many large companies who expanded their businesses post 2004-05, in anticipation of prosperous demand, are now suffering from overcapacities. Theories suggest that demand comes only when the inflation is low.
Analysts feel that “besides the sluggish demand, the pain undertaken in acquiring land (for setting-up new businesses) also makes them nervous”. The bank’s inability to lend at any interest rate complicates the matter further, they argue. “Banks in India and in China will continue to face pressures on their asset quality, profitability, and capitalization over the next 12-24 months,” says a report by Standard and Poors ( S& P) Global Ratings, adding that the non-performing loan ratios of Indian banks with high exposure to companies in troubled sectors will continue to rise. This means that Indian banks can finance the economy only after washing off their past sins.
“Both the government and the RBI are trying to push growth in their own ways and would continue to do so in future,” said Abnish Kumar Sudhanshu, Director & Research Head at Amrapali Aadya Trading & Investments. The government’s strategic vision of financial inclusion is being facilitated by the RBI’s governor decision to grant more banking licences. Moreover, the banking reforms undertaken by the RBI, asking banks to come clean on their NPAs problem instead of hiding it, deserves appreciation.
Prime Minister Narendra Modi knows quite well that growth is not the result of interest rates only. It is the structural changes, like the GST, which would bring growth by bringing down the cost of doing business in India. Rationalization of fuel subsidies is another marvel of structural changes that PM Modi has brought about.
Analysts agree that the growth accompanied by high inflation only helps the rich.
“Expecting the new governor to deviate from its mandate (of controlling inflation) looks a bit unrealistic,” Sudhanshu said.