On a day when the RBI mooted structural reforms to revive investor confidence in the Indian economy, the government has singled out the prevailing high interest rate regime as main reason for manufacturing slowdown. The Centre has promised to bring down entry barriers to businesses as well as a competitive tax regime to boost manufacturing growth under its ‘Make in India’ programme.
“The cost of capital is one singular factor which has contributed to the slowdown in manufacturing growth in recent years. The credit offtake is slow, the infrastructure creation slower… We need to ensure capital is available, we need to ensure that those sectors which are starving we are in a position to provide adequate capital to those industries,” finance minister Arun Jaitley said at a “Make in India’ event.
“The entry point into the manufacturing sector itself has to be eased. Our initial barriers have to be lowered and perhaps even removed. If we keep the doors closed, investments won’t come in,” he said, adding that the project implementation “across ministries, states and regulatory mechanisms requires to be expedited”.
Though the RBI in its latest Financial Stability Report (FSR) acknowledged investor optimism over the India growth story, it said the challenge ahead for the government is to deliver “commensurate structural reforms”.
In its monetary policy review earlier this month, the RBI had maintained the repo rate at 8% as it keeps an eye on the January 2016 CPI inflation target. The consumer price index (CPI) has dropped to 4.38% in November — its lowest since inception in January 2012. It was 5.52% in October. Wholesale price index inflation had decelerated at its fastest pace in five years at 1.77% in October — compared with 2.38% in the previous month.
These have added to the industry clamour for “accommodative monetary policy” to spur growth.
Referring to the forthcoming bankers’ retreat with Prime Minister Narendra Modi, Jaitley said its success could give the required fillip to the ‘Make In India’ campaign and spur domestic manufacturing.
On RBI governor Raghuram Rajan’s recent call for a redefinition of the much-touted “Make in India” campaign, Jaitley said “Whether Make in India is made for consumers within India or outside is not so relevant. The principle today says that consumers across the world like to purchase products which are cheaper and are of good quality. They hire services which are cheaper and good quality.”
RBI governor Raghuram Rajan had recently pitched for the concept of “Make for India” saying the world might not accommodate another “export-led China,” and therefore Indian manufacturing should rely on huge and expanding needs of the domestic market.
Rajan had cautioned against subsidizing inputs to specific industries just because they are deemed important or labour intensive.