Besides, the Reserve Bank of India , banks, states and the Central Government should move fast in taking the troubled power distribution companies (discoms) out of morass, or else they would become dead assets and big drags on the exchequer , causing big rise in the non-performing assets.
The RBI did show a great courage and slashed the policy interest rates, which however, did not get transmitted to the borrowers , on earlier occasions. Between September 2014 and August , 2015 while the Repo rate got reduced by 75 basis points (before the latest 50 bps cut), the banks weighted average lending rate was marginally brought down to 11.93 per cent , just down 15 bps from 12.12 per cent. Certainly, the banks did not help the situation and some of these core employment generating industries slipped further into troubles because of lack of consumer demand, high interest costs and cheap imports, the chamber said.
As the RBI has correctly noticed, the average industry capacity utilization is 77 per cent. So, unless the C.U reaches at least 100 per cent, we cannot expect the investment cycle to revive even though interest rates have come down. For creating additional demand, the government will have to chip in with, rather bold measures and create extra elbow room for the select industries by way of extending short tenure stimulus on construction material like steel, cement, power equipment while for the gems and jewellery, export sops like interest subvention must seriously be considered, ASSOCHAM Secretary General Mr D S Rawat said.
He said, it would be wrong to assume that the special dispensation would create a hole in the government's fiscal purse. On the contrary, extra demand would mean more tax collection and increased revenue while creating an overall positive atmosphere.
Once the growth cycle gets steam and becomes stable, the special window can be closed without a jerk. Under the given tough circumstances, lower interest alone would not help because the issue is not high cost of investment, but lack of demand, an essential factory for building new capacity, the chamber said.
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