Tags:
Journalism of Courage
With the IIP continuing to remain weak it grew just 0.1 in April it is almost certain the RBI will make a rate cut on Monday though a final call can only be taken after Thursday8217;s inflation data is in. The question is whether the rate cut,if it does happen,will affect the situation dramatically. Chances are it won8217;t. There has been a slight pick up in credit growth after the last rate cut,but at 17 the credit growth remains lower than what has been projected by RBI in other words,demand for credit remains low.
And it remains low not because of interest rates being high Sajjid Chinoy of JP Morgan argued in FE today that IIP started slowing in 2010 itself when interest rates were 400 bps lower than what they are today. The larger point is that there is a very large body of investments that are stuck the number of projects that have been stalled or abandoned over the last 6 quarters has doubled and they are not stuck because interest rates are too high. They are stuck because of what,in short hand,is called 8216;policy paralysis8217; the government8217;s inability to give corporates land,to get coal allocation,environment clearance,and so on. How an interest rate cut by RBI can fix this is anybody8217;s guess. Don8217;t hold your breath.
