The Reserve Bank of India (RBI) should immediately reduce the repo rate by at least 100 basis points to resurrect growth momentum in the economy. In a statement, Rajkumar Dhoot, President, Associated Chambers of Commerce and Industry of India (Assocham) said, lowering the repo rate would send a positive signal that the government was serious “and not dithering in its responsibility in taking bold and meaningful steps.”
The recommendation to cut the repo rate is a part of Assocham’s suggestions for quick measures from the RBI to prop up “the sagging business index.”
In a written representation to the RBI Governor, D. Subbarao, Mr. Dhoot said “the economy is passing through one of the most difficult times of this age. The slowing growth, elevated inflation, rising fiscal deficit as well as adverse current account balances, depreciating rupee has put tremendous pressure on the common man and industry.”
India’s economy grew by just 5.3 per cent in the quarter ended March 2012. Assocham suggested the cash reserve ratio (CRR) be reduced by at least 100 basis points to support credit growth and investments for capacity building.
The RBI, last month, kept interest rates on hold at a monetary policy meeting, despite calls from the industry and business leaders to lower rates further.
“The liquidity crunch faced by the banking sector and the latter’s dependence on insurance as well as mutual funds for short-term funds shows that the CRR needs to be reduced by at least 100 basis points to support credit growth and investments. The market intervention by RBI to support the rupee has also sucked out liquidity,” said Mr. Dhoot.
Further, the chamber has requested “at least 2 per cent interest subvention”’ for the small and medium enterprises (SME) sector which, “is reeling under high cost of funds and needs immediate relief. The high percentage of NPAs in SME sector needs to be viewed with compassion as they suffer the most.”
