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Anand Sharma seeks RBI rethink on interest rate decision

India’s commerce minister Anand Sharma has called the Reserve Bank of India (RBI)’s decision not to cut interest rates as ‘disappointing’.

Trade bodies have been urging the banking regulator to ease the flow of money into the economy by lowering credit rates and-or lowering cash-reserve-ratio or CRR.

On Monday, RBI kept both the CRR and the interest rate unchanged, implying that companies will find it just as tough or easy to get loans as they had before the announcement.

India is suffering from a double whammy of high inflation and declining growth. On the one hand, if the RBI relaxes the flow of money, inflation will go up as there will be ‘too much money’ in the system. On the other hand, if it doesn’t ease lending norms, tight credit will keep business growth on the slow lane.

However, contrary to expectations, the RBI seems to have decided that inflation and price rise is a bigger concern than GDP growth, letting the rates remain unchanged.

India faces retail inflation of about 10% per year, making life harder for ordinary people.

However, Anand Sharma said he was disappointed at the RBI action.

“We were hoping that there would be some positive news as far as the investments are concerned, given the fact that there has been a decline in manufacturing for the last eight months.

“We have seen a fourth quarter running as the industrial production has been adversely impacted. The investment sentiment is low. Therefore the RBI decision whatever reasons they have based it on, is disappointing and will not help in reversing the trend when it comes to the core sector of the industrial manufacturing,” Sharma said.

He said the high inflation in the country is cased by food prices and not those of manufactured items.

“To the best of my understanding, RBI’s logic of not doing this is inflation. Inflation is not in the manufacturing sector. Last eight months there have been a clear decline in the manufacturing continuously, manufacturing inflation from over 7% to little over 5%.

“Inflation is because of the food articles, that too in vegetable; seasonal vegetables, not in perennial vegetables. Those prices are always changing, whether of cabbage, meat or eggs. When inflation is calculated, there is a basket of goods and commodities which is kept there according to. Now by any yardstick for industrial sector, which is not showing any inflationary trend, but the declining trend both in inflation … There is a case of a relook and I shall definitely be writing, both to the finance minister and the RBI governor,” he said.

He also dismissed media reports that the Finance Secretary has written to the Commerce Secretary expressing alarm over the Commerce department not keeping Finance in the loop on the Foreign Trade Policy changes announced a week ago.

“The government of India does not function that way. Anything what has been announced, the key provisions have been discussed in details and there is a complete understanding between me and the finance minister.

“I would not have announced something which the Finance Minister has not concurred to. So I reject that completely (Finance Secretary letter to the Commerce Secretary) is not about any breach of understanding between the two ministers; that’s not correct at all. These are matters of implementation details and I am given to understand that it is about language and details downstream which stand addressed.

When it comes to major announcements, whether on interest subvention or EPCG schemes, there is complete understanding and anybody saying anything to the contrary is wrong,” Sharma said.

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