The clamour for a rate cut now is almost deafening. If the markets don’t see at least a 25 basis points cut in the repo on April 5, expect nothing short of a revolt from giddy bond dealers. What’s raised the pitch is the cut in interest rates for small savings schemes which, the general belief goes, will allow banks to prune their deposit rates and in turn loan rates. But more than that, inflation is cooling, the government has promised not to overspend and there are few signs, if any, the economy is getting back on track. And a hefty cut in rates, everyone’s hoping, will pull the economy out of the rut.

Because the bottomline is there is no recovery or very little. Growth in GDP—as measured by the old series—slipped to 4.6% in the three months to December and it’s becoming harder to recall when exactly it was that we were growing at 8% . Or even 7.5%. Which is the maximum we can be growing at right now according to Bank of America economist Indranil Sengupta who crunched the numbers according to the old-series of GDP data. Sengupta attributes the listlessness in the economy to real interest rates being at a 20-year high.

That the economy isn’t galloping is for sure, it’s barely a trot actuallyand not looking like it will break into a canter anytime soon. Industrial growth has contracted three months in a row to January and exports, of course have fallen off for14 straight months now. That, of course, is the fault of the rest of the world.

It may be old-fashioned not to talk about GVA (gross value added) — approximately the sum of operating profits and wages —-rather than the output. But at the end of the day, it’s fresh investments that will create jobs and, consequently, it’s important companies make a profit so they can grow their businesses. But before that they must be confident there will be takers for what they produce; right now there’s more of almost everything than is being sought for. Which is probably why output is in sorry shape haveing clocked in just 2.7% between April and January on a base of 2.7% in the corresponding period of FY15. Of course, that’s a lot better than the 0.1% in FY15, but not even near the 3.4% in FY14 and a lot worse than the 8.3% in FY11.
Indicators such as commercial vehicle sales are doing better—sales between April and February are up more than 10% and while, in absolute numbers, FY16 may not match the FY13 peak of nearly 8 lakh vehicles, they could top 6.6 lakh. While some of this pick-up is resulting from older trucks being replaced, activity at some iron ore and coal mines has resumed, calling for more trucks. Car sales have so far not been too encouraging but it’s possible they will reach the 2.6 million number reported in FY13. One could argue, therefore, that there is growth but the pace is excruciatingly slow. But that’s true for small-ticket items, not too many people are buying houses—the pile-up in home inventories in some parts of the country it’s so high it could take three- four years to clear.

It’s not so clear lower interest rates will do the trick immediately since there is so much surplus capacity. But it will give thousands of companies some breathing room if banks trim their base rates. Incidentally, interest rates have not fallen as much as they probably should have; economists like Sengupta say this is because of a shortage of liquidity which has arisen, one reason for which is that forex inflows have been relatively small. Restoring liquidity is also the task of the central bank and unless there’s more money around, it’s going to remain costly. Technically speaking adequate liquidity is necessary for transmission and the Reserve Bank of India has been spewing out a lot of it lately, something that it probably should have done earlier. Nevertheless, rates are falling and post April 5, could fall further.