The Reserve Bank of India (RBI) decision to hike Repo rate will increase the cost of doing business and impact capital expenditure by India Inc, the Confederation of Indian Industry (CII) has warned. It also listed availability of credit as a worry with 11 banks under the prompt corrective action (PCA) framework of the RBI.
“The cost of doing business goes up because of the hike and it will impact capex (capital expenditure) by the industry,” CII president and vice-chairman of Bharti Enterprises Rakesh Bharti Mittal said here. However, normal monsoon and supply side measures will have a cooling effect on inflation and help restrict the rate hikes to just the one taken earlier this month, he said at a press conference. Last week, the RBI had raised the Repo rate by 25 basis points to 6.25 per cent after over four years.
The industry has also promised a capex of Rs 50,000 crore in the recent months, he said, adding that an uptick in capacity utilisation levels to 80 per cent can prod more industries to join the club. The RBI may also look at cutting the recently implemented hike and returning to the “benign” rate environment once it sees comfort on the inflation front, he said.
Mittal listed availability of credit as a worry, stating that smaller businesses, which will get affected, are the ones that need attention at present.
He said 11 banks under the prompt corrective action (PCA) framework, which puts restrictions on normal lending activities, reduces their ability to support the needs of growth.
Kotak Mahindra Bank’s managing director and chief executive, Uday Kotak, who is also the president-designate for CII, said the RBI is responding to the risks that it is anticipating by keeping in mind its inflation targeting objective. The apex bank has done a “balancing act” by keeping the stance of the policy at neutral which allows for any reversals in rates, Kotak said.
When asked about the difference between 2014, when the Narendra Modi regime kicked-off with a clear majority, and now, Kotak said the “macros” were working for the benefit of the country like lower oil prices, but the “micros” within the country were tough.
“The situation has reversed now, where the macros are getting tougher through surge in oil prices, rising protectionist tendencies in the world and hardening interest rates globally but the micros are better,” Kotak.