Cut interest rate, reduce price of money, FICCI urges RBI

President of the Federation of Indian Chambers of Commerce and Industry Pankaj Patel has called on the Reserve Bank of India (RBI) to reduce the price of money for Indian business by easing the fiscal deficit and inflation targets and allowing the rupee to depreciate against major currencies.

“They are holding the rates too tight. The inflation and growth argument is an old one but India has its unique set of needs and RBI must loosen these targets to spur growth,” Patel said on the sidelines of the IMF meetings in Washington DC.

FICCI has asked the government to allow 3.5% of GDP fiscal deficit target for the next two years and ease the inflation target to 4.5 - 5%.

“This is not about just one industry or our chamber. How will growth happen across the country unless there is investment and how will that happen without a cut in interest rates?,” Patel said.

"Rupee is strengthening, imports are becoming cheaper, and industry is suffering, there has to be balance and that is RBI’s job. One of the challenges is that regulators are working on a one-way street. They need to maintain discipline and also ensure that the industry grows. They will have to be bold so investors get a signal that we can invest", FICCI leadership said.

FICCI says RBI's tight leash on interest rate is not working for Indian business/ Reuters

FICCI says RBI's tight leash on interest rate is not working for Indian business/ Reuters


It’s clear that the short term adjustment issues of GST and the pain of demonetisation are less of a worry now for FICCI members than the money market fixes that they are pushing for along the same theme of “bold” reforms that the Indian government is showcasing in the US this week.

Even at the IMF meetings, a number of institutional investors we spoke to welcomed India’s move to clean up the system although they may not agree with the shock methods adopted to get it done - that is a debate with no end and industry wants to move on from there.

“Equally, the prospect of sudden changes in policy has put us on guard. That’s something we’re not sure about - when the next big policy change may happen,” said observers from the Luxembourg Stock Exchange.

For Indian industry though, those concerns are not as weighty as the reality of stagnant exports and low credit offtake.

FICCI, it is learnt, has handed over this list of top concerns to the Commerce ministry and discussed the same with the Finance Ministry:

-High interest rate, low credit offtake
-Stagnant exports because of an overvalued rupee
-Low Demand: Consumption picking up but investment is low.
-Regulation Raj; Non-accountability of regulators worsened by government officials who have become more risk averse on the back of anti-corruption activism, CBI raids.


Others at the huddle in Washington DC - Rashesh Shah, Chairman of Edelweiss Financial Services, Rajan Bharti Mittal, Vice Chairman of Bharti Enterprises, Harsh Pati Singhania, Vice Chairman & Managing Director of JK Paper and FICCI General Secretary Dr. Sanjaya Baru - said their focus is no longer on the structural changes that may continue to affect members’ businesses even for the next few months.

That the RBI’s monetary policy committee has made “infation control their single point agenda” is problematic and counterproductive, in FICCI’s view.

A new state of the art paper by Olivier Blanchard and Lawrence Summers being shared liberally at the IMF annual meetings makes a strong case for thinking of the intersect of low interest rates and human appetite for risk. “It has been argued that a combination of human nature, agency issues, and gambling for resurrection, all lead to more risk taking when interest rates are low. If it is indeed the case, then there is again an important role for financial regulation and macro prudential policy to play.”

“Economies can be affected by strong shocks, and cannot be expected to automatically self stabilize”, this paper argues in favour of aggressive monetary policy and a need to shake out of a perennially post crisis state of mind.

In simpler words, that’s what FICCI is calling for. Lower interest rates, loosening inflation targets and cheaper money so investors are not too scared to plunge in.

We learn that FICCI has handed in the below recommendations to the government:

- Ease Fiscal Deficit and Inflation Targets (Allow 3.5% of GDP FD target for next two years. Ease inflation target to 4.5% to 5.0%)
- Allow Rupee to depreciate against major currencies.
- Address GST concerns of MSMEs and Exporters on an urgent basis.
- Speedily implement Affordable Housing programme, address concerns of real estate firms and revive housing activity.
- Implement pipeline infrastructure projects - road, power, urban infrastructure.
- Create regulation free investment zones.
- Revive Long-term Development Finance Institutions by infusing capital, utilising forex reserves and West Asian SWFs.
- Restore confidence among policy makers to enable decision-making. Amend Prevention of Corruption Act - section 13 (1) (d) (iii), which criminalizes officers’ acts even in absence of mens rea. Such provisions hinder the decision making ability of the bureaucracy, who are key in implementing the national development agenda.
- Outreach to domestic business leadership at highest levels in government has been limited. There is a need to remove fear psychosis amongst entrepreneurs by strengthening the trust between the industry and banking sector as also with bureaucracy.


Published Date: Oct 14, 2017 06:48 am | Updated Date: Oct 14, 2017 06:53 am



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