1. Rate cuts by RBI not stimulating investments in manufacturing sector: Poll

Rate cuts by RBI not stimulating investments in manufacturing sector: Poll

Reductions in key interest rate by the RBI have not helped stimulate investment in the manufacturing sector, said a poll ahead of the Reserve Bank's policy review on Tuesday.

By: | New Delhi | Published: April 5, 2015 1:28 PM
Reserve Bank of India, RBI, RBI interest rate cut, RBI rate cut

Reductions in key interest rate by the RBI have not helped stimulate investment in the manufacturing sector, said a poll ahead of the Reserve Bank’s policy review on Tuesday. (Reuters)

Reductions in key interest rate by the RBI have not helped stimulate investment in the manufacturing sector, said a poll ahead of the Reserve Bank’s policy review on Tuesday.

According to the survey conducted by Ficci, 69 per cent respondents do not foresee any substantial increase in investments by their organisation as a result of reduction in repo rates.

RBI has lowered interest rates by a total of 0.50 per cent since January, but banks are yet to pass on the benefits to borrowers.

“Interest rates or cost of finance continues to be sticky. Interest rates paid by the manufacturers range from 9.5 per cent to 14.75 per cent as per the survey with average interest rate at 12.2 per cent. About 58 per cent respondents said availing credit at over average interest rate of 12 per cent,” the survey said.

Banks have said they will wait till RBI’s next monetary policy review on April 7 before deciding on interest rates.

The survey also forecast negative growth rising to 18 per cent in the January-March quarter from 11 per cent in the previous one. Also, over 80 per cent respondents are not likely to hire additional workforce is the next three months.

Availability of land, delay in regulatory clearances, poor demand and high cost of borrowing are some of the major constraints which are affecting the expansion plans, said the survey.

Moreover, investment remains subdued in the manufacturing sector mirroring previous quarters. About 73 per cent respondents said that they do not have any plan for capacity additions for the next six months compared with 74 per cent in third quarter of 2014-15 and 71 per cent in second quarter.

However, the poll indicated that worst may be over for the sector, as 52 per cent respondents said the production rose in the March 2015 quarter against previous year.

The survey responses have been drawn from 272 manufacturing units from both large and SME segments with a combined annual turnover of over Rs 4 lakh crore.

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  1. S
    Sivaramakrishnan
    Apr 6, 2015 at 6:21 am
    The real reason is "Sluggish Demand"... just a quarter percent cut in rate by RBI will not stimulate demand rather it will only reduce finance cost to that extent & that will not see any reduction in prices of products. For demand to pick up, it is only in the hands of the Govt... one the previous cong govt pered the economy and the present govt is just articulating to set thing right but till now it has not shown any result... and the repeated comment by the industry that "worst is over" is just a hogwash...
    Reply
    1. S
      Shome Suvra
      Apr 5, 2015 at 2:43 pm
      For transmission of rate cut enough liquidity at lower interest rate is important & banks' resilience is also a factor. To increase the desired capital stock rental cost of capital should be reduced. Hiring will take place till marginal product of labor is equal to real wages.
      Reply

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