Rekindling the recovery hope

Interest costs of over 2,000 top Indian companies have begun to ease off. For the second quarter of 2012-13 interest cost has grown by only 11.4 per cent against the steep 58.5 per cent in the same period a year ago. Their interest burden too has come down to 27.2 per cent of revenue compared to 29.1 per cent a year ago. The companies are obviously getting more breathing room in their operations (RBI Macroeconomic Survey).

So while corporate investments are down to about 5.5 to 6 per cent of the GDP — the same level as in the aftermath of the global financial crisis in 2009-10 — Tuesday’s rate cut actually goes further than what the initial reactions would suggest. Finance minister P Chidambaram has stressed on the need to improve investments and RBI governor D Subbarao too acknowledged it as the missing driver that has guided his decision to cut rates.

Interest rates and the consequent servicing costs had dimmed the appetite for loans by corporate India in 2011-12 and even made the first few months appear bleak in 2012-13. The central bank in its second quarter monetary policy review was forced to cut credit growth projection for 2012-13 by one percentage point to 16 per cent and overall bank credit as well as non-food credit have remained within

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