Hardpressed for a cheaper credit the industrial sector, which is reeling under negative growth at (-) 0.5 per cent, is keeping its fingers crossed and expecting succour from the RBI in its monetary announcements.
"We wish the interest rates would to come down but I believe that the RBI Governor has his own calculations and don't see him a cutting the policy rates this time ," said RC Bhargava, Chairman, MSIl told The Pioneer. The auto-sector and housing sectors are key sectors whose sales are leveraged on loans and consumer credit offtake through both the normal banking channels and the NBFCs.
Both these sectors are critical and have a multiplier effect on stimulating overall growth in the economy - which as per CSO has dipped to 4.7 per cent for the previous fiscal. Both the sectors have recently shown signs of turnaround however, experts feel that the momentum would have to be sustained in order to achieve a complete recovery.
However, Bhargava said:"given the inflationary pressures there is little possibility of the reduction in key rates" A downward revision of the key rates by RBI in its monetary policy would in turn help to soften the bank rates and hence could lead to a passdown by banks for lowering interest rates for retail credit. Industry leaders are largely bullish and are hopeful of a turnaround with the new Government in place and a stable policy announcements by the latter in the coming months.
last week, as per the recent CSO announcements, the manufacturing sector contracted by 0.7 per cent in the financial year 2013-14 as compared to a growth of 1.1 per cent in 2012-13. It showed a decline of 1.4 per cent in the fourth quarter in contrast to the growth of 3 per cent registered a year ago.
By March the IIP had made a marginal recovery although it continued to stay in the negative territory at (-) 0.5 per cent a wee a bit above the (-) 1.8 per cent in February. As per the announcements, the services sector, including financing, insurance and real estate, expanded 12.4 per cent in the January-March quarter as against 11.2 per cent a year earlier. The segment grew 12.9 per cent in 2013-14 compared with 10.9 per cent in previous financial year.
RBI Governor, Raghuram Rajan who has already met PM Narendra Modi is hardpressed to contain CPI inflation which stood at 8.6 per cent for April and food inflation stood at 9.6 per cent for April. He is largely expected to keep the key interest rates unchanged in the monetary policy announcements today.
In addition the indications of 60 per cent monsoons due to the El Nino effects and in turn its influence on the farm output is likely to further complicate matters. In the last three monetary announcements of the RBI, Rajan has not relented and has not softened the key rates including the repo rates, despite pressure from the industry to softer the stand as it was effecting recovery and growth.