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  Opinion   Edit  03 Aug 2017  RBI rate cut: Time for govt to act now

RBI rate cut: Time for govt to act now

THE ASIAN AGE.
Published : Aug 3, 2017, 12:00 am IST
Updated : Aug 3, 2017, 5:41 am IST

On the growth of the economy it is a good sign that the RBI has maintained the real GDP growth for 2017-18 at 7.3 per cent.

It must be stressed that interest rate is a small part of the overall cost of production and as the RBI observed there is a lot of work to be done by the government.
 It must be stressed that interest rate is a small part of the overall cost of production and as the RBI observed there is a lot of work to be done by the government.

The Reserve Bank of India met the expectations of the stock market, economists and the banks with a quarter per cent cut to six per cent in the repo rate (the rate at which RBI lends to banks) in its monetary policy announced on Wednesday, though like Oliver Twist some RBI watchers felt that half a per cent cut would have been more appropriate considering the liquidity in the system. Other factors like the inflation rate coming down consistently; the state of the economy and lagging private investment point to the fact that a higher rate cut might have helped to kickstart private investment. However, the co-relation between an interest rate cut and revival of private investment is not clearly established. What cannot be denied is the fact that if consumers get more spending power due to a robust cut in consumer borrowing rates —like in home loans and personal loans — it would lead to a push in consumption which, in turn, would see a cut in the idle capacity in industry which has just a 60-75 per cent capacity utilisation. 

It must be stressed that interest rate is a small part of the overall cost of production and as the RBI observed there is a lot of work to be done by the government. There is, for instance, the urgent need for the government to reinvigorate private investment, remove infrastructure bottlenecks and provide a major thrust to the Pradhan Mantri Awas Yojana for housing needs of all. The states are really the culprits here as they are the ones delaying permissions for projects despite all the talk of one window clearances. Corruption is still a factor in giving permissions. There is a need for an independent body that would look into the delays and see that vested interests are not holding back people-oriented housing policies as they thrive on shortages. Housing has a huge multiplier effect for the economy as it spurs production of cement, steel and a whole lot of ancillary industries besides giving employment to both skilled and unskilled labour. There is no reason, for instance, why in Mumbai, one in four people must live in slums of 12x12 square feet. Banks too are facing the burden of stressed assets and it is a welcome sign that the RBI governor said on Wednesday that it is working in close coordination with the government to resolve the issue of large stressed corporate borrowers and recapitalise public sector banks within the fiscal deficit target.

 

On the growth of the economy it is a good sign that the RBI has maintained the real GDP growth for 2017-18 at 7.3 per cent. Whilst this is good news generally, what is more important for the people is growth with employment which has not been happening so far. India is still far away from the 10 million jobs in five years promised by the Prime Minister. The PM is reportedly looking into this but nothing has been heard so far. Achchhe din is yet to come on the crucial housing front.

Tags: rbi, monetary policy, pradhan mantri awas yojana