‘It is sad that RBI acted contrary to the expectations of the industry

Capital intensive knitwear manufacturing cluster in Tirupur reacted with surprise and disappointment to the Reserve Bank of India’s decision on Friday to raise the policy repo rate under liquidity adjustment facility (LAF) by 25 basis points.

In the mid-quarter monetary policy review, RBI Governor Raghuram Rajan announced that the repo rate under LAF was increased from 7.25 per cent to 7.5 per cent while keeping the Cash Reserve Ratio (CRR) unchanged at 4 per cent.

The apex bank was of the view that the rate was increased to bring down the inflation to “more tolerable levels”.

“It is sad that the RBI acted contrary to the expectations of the industry which has been in need of loans at cheaper rate to generate demand. How can industrial growth be achieved if the cost of funds remain high?,” P. Moghan, a prominent apparel exporter and treasurer of Tirupur Exporters Association, quipped.

Industrialists and technocrats, by and large, opined that the RBI could have at least kept the repo rate unchanged taking into consideration the apparent fact that the high cost of capital subsequent to the frequent increases in the repo rate since March 19, 2010, had a cascading effect on capacity expansion of predominant small and medium scale enterprises.

The repo rate till March 18, 2010, was just 4.75 per cent.

S. Dhananjayan, a senior member of Institute of Chartered Accountants of India, was of the view that the RBI should shed its obsession for ‘tackling inflation’ above the industrial growth in its policy statements.

Crude oil

“The apex bank has raised the repo rate 13 times in 18 months starting from March 2010 and has the inflation come down in the country? It did not, because the inflation in the country was caused by various factors including global crude oil prices and black money in circulation, among others. This can be offset only by promoting exports,” he said.