“We were expecting an early signal from the Reserve Bank of India of softening in interest rates, now that India’s economic growth is on the cusp of a recovery. However, the central bank seems cautious about inflationary conditions still and has taken cognizance of its target of 6% retail inflation by 2016. It, therefore, chose to give no such signal.
With India’s business cycle bottoming out, however, it is necessary to augment private investment to ensure a sustained recovery. For long, India has averted a recession (negative growth) through heavy government spending financed by debt, leading to higher interest rates. This has, in turn, dissuaded private investors, eventually crowding them out. With the new government making all the right noises regarding public-private models in infrastructural development, now would be the right time to renew interest in private credit offtake by lowering borrowing costs.”
Source: Lokesh Shastri
