Stating that the Reserve Bank of India (RBI) was becoming “over-cautious” in reading the potential risks to the economy, India Inc sought “bolder intervention” from the central bank to boost investments.

“The decision of RBI to cut the policy rates by 25 basis points (bps) sends a strong signal that the RBI is refocusing its priority in favour of growth… However, the given economic conditions required a bolder intervention from the RBI,” Confederation of Indian Industry (CII) President S. Gopalakrishnan said.

The economy was certainly not out of the woods. There was a clear deficiency in demand, as consumers were reluctant to undertake big purchases. Investments were fraught with problems, including the high cost of funds, he added.

“In such a scenario, aggressive monetary easing affected by a 50 basis points cut in repo rate would have provided the necessary stimulus, along with a 50 bps reduction in CRR (cash reserve ratio),” he said.

Echoing similar views, Federation of Indian Chambers of Commerce and Industry (FICCI) President Naina Lal Kidwai said the cut in the repo rate would send the right signal to India Inc. It would be important to continue with this stance at least over the next quarter, she added.

Associated Chambers of Commerce and Industry of India (Assocham) said the RBI was “becoming over-cautious in reading the potential risks to the economy, and staying stubborn with the hawkish monetary policy”.

A sharp cut in the CRR should have eased pressure on the liquidity and too much money was is locked in CRR, the chamber added.

‘Will strengthen financial markets’

Our Mumbai correspondent reports:

“The reduction in repo rates along with the commitment to maintain liquidity to ensure adequate credit flow in the system is welcome. At the same time, the RBI has recognised certain challenges like the current account deficit, upside risks to inflation and moderate investment growth.

“The developmental and regulatory steps announced by the Reserve Bank of India (RBI) will serve to strengthen financial markets, improve financial inclusion and enhance efficiency of direct benefit transfers,” said Chanda Kochhar, Managing Director & Chief Executive Officer, ICICI Bank.