The Reserve Bank of India (RBI)'s policy comes at a time when growth in India has declined sharply due to stagnant investment and falling consumption. Inflation has still not cooled to the desired levels and the country is suffering from structural inflation issues, driven primarily by lack of infrastructure and poor agricultural productivity. India's average food inflation over the last eight years has been 9.94 per cent. Although headline inflation has moderated recently, it's imperative to keep a watch on suppressed inflation in the energy segments such as diesel, coal and electricity. Confident recovery is yet some distance away.
Given the complex and myriad challenges faced by India, it is clear that monetary action alone cannot revive growth. It needs to be complemented by rapid and purposeful action by the government in reviving investment and de-bottlenecking growth impediments. On the ground, evidence suggests the recent reform push is not translating into meaningful activity as yet.
In the light of the current dynamics, a 25 basis points rate cut and a clear mention of limited monetary space reflect an appropriate policy stance. We need to ensure quick transmission by the banking system of the rate cut which, in the past, have been delayed and inadequate. Relief to existing projects and the consequent improvement of their viability would depend on the extent of transmission of the interest rate reduction. We also believe that RBI should play a key role in clearing roadblocks in the banking channel of policy transmission. This, along with actions by the government for supportive policy framework, will lead to revival of the investment climate and trigger a virtuous cycle that will go a long way in harnessing India's growth potential.
R Shankar Raman
Chief Financial Officer, Larsen & Toubro
Given the complex and myriad challenges faced by India, it is clear that monetary action alone cannot revive growth. It needs to be complemented by rapid and purposeful action by the government in reviving investment and de-bottlenecking growth impediments. On the ground, evidence suggests the recent reform push is not translating into meaningful activity as yet.
In the light of the current dynamics, a 25 basis points rate cut and a clear mention of limited monetary space reflect an appropriate policy stance. We need to ensure quick transmission by the banking system of the rate cut which, in the past, have been delayed and inadequate. Relief to existing projects and the consequent improvement of their viability would depend on the extent of transmission of the interest rate reduction. We also believe that RBI should play a key role in clearing roadblocks in the banking channel of policy transmission. This, along with actions by the government for supportive policy framework, will lead to revival of the investment climate and trigger a virtuous cycle that will go a long way in harnessing India's growth potential.
R Shankar Raman
Chief Financial Officer, Larsen & Toubro