RBI rate cut not enough to stimulate manufacturing: FICCI
New Delhi: Ahead of the RBI’s bi-monthly monetary policy review on Tuesday, the FICCI said on Sunday that any cut in interest rates would not be “adequate to stimulate investment in manufacturing” given the lack of “significant change in demand conditions”.
The Federation of Indian Chambers of Commerce and Industry (FICCI) in its latest quarterly survey said 69 percent of respondents do not foresee any substantial increase in investments by their organisation as a result of reduction by the Reserve Bank of India (RBI) in repo rates at which it lends to commercial banks.
“Interest rates or cost of finance continues to be sticky. At least 58 percent of respondents reported availing credit at over 12 percent average interest rates,” FICCI said in a release.
“For Q-4 (January-March 2015), 73 percent respondents reported that they don’t have any plans for capacity additions for the next six months. Availability of land, delay in regulatory clearances, poor demand conditions, and high cost of borrowing are some of the major constraints affecting the expansion plans of the respondents,” it added.
In terms of order books, it said the survey result “remains same as of the previous quarter (Q-3), indicating no significant change in the demand conditions”.
The FICCI survey gauges the expectations of manufacturers in 13 sectors – textiles, capital goods, metals, chemicals, cement and ceramics, electronics, auto components, leather and footwear, machine tools, food and fast moving consumer goods, tyre, paper and textiles machinery.
“Responses have been drawn from 272 manufacturing units from both large and SME segments with a combined annual turnover of over Rs.400,000 crore,” the FICCI said.
The RBI is widely expected to leave the repo rate unchanged at 7.50 percent at its first monetary policy review of the new fiscal on Tuesday, after two unscheduled rate cuts made this year.
“Not expecting any rate cuts this time, not for another one or two months,” Vinod Nair, head of fundamental research at Geojit BNP Paribas Financial Services, told IANS from Mumbai.
“It is very difficult this time with retail inflation increasing. The RBI would also like to look at the public sector banks’ distressed loans restructuring issues during the last quarter,” he added.
Nair said the RBI wanted to see the impact of a possible hike in US interest rates by the Federal Reserve in June, though that appears less likely.