With growth in mind, RBI has reduced the statutory liquidity ratio (SLR) by 50 basis points; this will aid credit growth by releasing liquidity into the system. “The RBI moves are on expected lines and in keeping with the governor’s stated position that rates will not be cut till prices are under control. For large companies, liquidity is not an issue, but it is certainly a big issue for mid and small companies, which impact the supply chain,” says Seshagiri Rao, joint managing director and chief executive of JSW Steel. “I expect inflation to come down in the next few quarters, as the new government tackles supply side constraints in the July Budget,” he adds.
Most companies are assessing the impact of the reduction in the export credit refinance facility from 50 per cent to 32 per cent of export credit outstanding. They say this measure is unlikely to have any immediate impact.
“Economic sluggishness is expected to continue for some more time and we hope with a lag, once projects are approved and investments start happening, we will see a number of indicators coming out to be positive,” says Prabal Banerjee, president (international finance), Essar group. “We believe that is the time we need positive impetus in the form of rate cuts. As of now, RBI’s step to bring stability in the economy by marginal calibration is the right way ahead for the country.”
The RBI move comes in the wake of India’s economy growing 4.6 per cent year-on-year in the quarter ended March, unchanged from the growth in the previous quarter and broadly in line with expectations. Though the new government wants to expedite growth, rising prices are making it difficult for RBI to cut rates.
“If WPI (Wholesale Price Index) and CPI (Consumer Price Index) figures are contained within limits, I foresee a cut in policy rates in three-four months. We must remember the inflation is essentially due to supply-side constraints and these can be tackled only through speedy capacity creation through investments in infrastructure. In this backdrop, infusing liquidity into the system through a cut in SLR (statutory liquidity ratio) is the right move at this juncture. The cut in policy rate, as and when it comes, will improve the investment climate and help channelise more investments into infrastructure,” says Hemant Kanoria, chairman and managing director of Srei Infrastructure.
Yogesh Agarwal, managing director of BILT, an Avantha Group company, says, “The decision to keep rates on hold was on expected lines, but we would have been happier with a cut in the repo rate. The new government has come in with a specific aim of reinvigorating Indian industry and while I have no doubt the new regime will leave no stone unturned to get Indian manufacturing going again, a little help from RBI could have come handy.”