Strong case to cut policy rates in India, top manufacturing countries placed far better in costs of credit: PHD Chamber

Status quo maintained by US FED creates lot of scope for repo rate cut as our cost of borrowings are significantly high as compared with our manufacturing peers and other competitive economies, said Dr. Mahesh Gupta, President, PHD Chamber of Commerce and Industry.

While welcoming the US Fed decision to keep policy rates unchanged, Dr. Mahesh Gupta said that though USA has significantly recovered from the recession, low policy rate regime should continue till the growth becomes strong and sustainable, he said.

At this juncture, India’s economy should be supported by lower interest rates to enhance the demand for durables and to boost up the manufacturing sector as domestic inflation for August has come down to 5.05 percent and IIP has dipped drastically to (-) 2.4 for the month of July 2016, said Dr. Gupta.

Cost of credit to businesses is high as compared with many competitive economies, impacting not only domestic competitiveness but also comparative advantage in the international markets, he said.

India’s repo rate at 6.5% is significantly higher as compared with the world’s 5 largest manufacturing countries including China (4.35%), United States of America (0.5%), Japan (-.1%), Germany (0) and Republic of Korea (1.25%).

Other competitive economies such as Thailand (1.5%), Hong Kong (0.75%), Malaysia (3%), Singapore (0.37%), Taiwan (1.38%) are significantly better than India in the costs of credit.

Going ahead, we expect a significant cut in repo rate to facilitate the competitiveness of the manufacturing sector to compete in the international market, said Dr. Mahesh Gupta.