NEW DELHI: Finance minister Arun Jaitley on November 5 told industry captains that he expects the cost of capital to come down, a statement which CEOs read as a signal to a rate cut in the coming months. The issue of high cost of capital, mounting bad debt in public sector banks and infrastructure gap came up for discussion during Jaitley’s closed-door meeting with a group of Indian and foreign CEOs, including Bharti Group’s Sunil Mittal, Religare’s Malvinder Singh and Etihad Airways president and CEO James Hogan.
Source present in the meeting told TOI that some of the foreign CEOs raised concerns over the steep rise in nonperforming assets of banks, and the minister responded by saying that the government is taking steps to address the concern. On October 24, Jaitley had made a case for an interest rate cut by the Reserve Bank of India in an interview to TOI. “Currently, interest rates are a disincentive. Now that inflation seems to be stabilizing somewhat, the time seems to have come to moderate the interest rates,” the minister had said. Despite inflation moderating to a five-year low, the RBI has so far resisted the temptation.
But, given the surplus cash in the system, the cost of funds for companies raising loans has come down in recent days. Corporate chiefs see a rate cut by the central bank as the best way to step up investment in the economy. “It may be time for the RBI to think of a rate cut,” Mahindra group chairman Anand Mahindra said. Pointing out that inflation is moderating, he added, “The need of the hour has changed and it is time to start looking at supporting growth.” Mahindra sought relief for automakers in the form of lower excise duty. Uday Kotak, vice-chairman and MD of Kotak Mahindra Bank, also pitched for a rate cut.
“The RBI should be considering a rate cut between December and February. The macroeconomic conditions have improved significantly now.” Kotak said with the Modi government kick-starting the economic reforms process, the economy has started to pick pace. However, he added that one should not expect an immediate recovery. “It has to be seen as a marathon, rather than a sprint.” Kotak added that the Indian economy should see an average growth of 6.5% over five years. Sunil Mittal, chairman of Bharti Enterprises, also hoped that a rate cut happens soon. “Once the finance minister asks for it, he speaks for the nation.”
The telecom czar said that the new government has moved ahead with “some big reforms” which have led to a movement in the Indian economy. “But just give it some time for a pick-up.” Rahul Bajaj, chairman of Bajaj Auto, said further steps are required to give a big thrust to the economy. “They cannot happen all of a sudden.” He said interest rates should be lowered, though the final call remains with RBI governor Raghuram Rajan.