India Inc is bracing itself for yet another policy rate hike by the RBI Monetary Policy Committee in the range of 35-50 basis points as the move seems unavoidable in the wake of the global monetary tightening to limit the impact of inflation, ASSOCHAM has said. The Chamber has sought a balanced and smooth transition to the new trajectory for borrowing costs.
Seeking several measures for ensuring that adequate liquidity is maintained within the system, the ASSOCHAM has said ” 35-50 bps rate hike seems imminent and inevitable while the MPC may leave the CRR and SLR rates unchanged”.
ASSOCHAM President Mr Sumant Sinha said while 35-50 bps increase in the benchmark rates seems unavoidable at this point of time given the continuous monetary tightening by the US Federal Reserve and other central banks. He however noted that economic activity is at robust levels. “India is in a sweet spot with growth coming from all quarters and inflation is relatively in control. Softening of crude prices will augur well for the economy and we should start the interest rate cut cycle from early part of FY24.”
Among other suggestions, he said Sustainability should be brought under the ambit of priority sector lending and only then tax free bond issuances and lower capital charge and provisioning will result in lower borrowing cost for sustainable projects and drive the same.
The Chamber Secretary General Mr Deepak Sood said, ”while the industry would like to see lower interest rates, the main challenge and the priority is to tackle inflation head on so that we have a sustainable growth”. He stated that the intent of monetary intervention by the RBI shouldn’t result in the deflation of the economy and fiscal boosters may prove beneficial to control inflation.
The chamber, which has sent a detailed note to the RBI , in the run-up to the forthcoming credit policy review , said India is better placed on the inflation front than the Advanced Economies, which are witnessing higher inflation due to supply side issues on labour, and energy shortages particularly in Europe.
The Indian lending rates have to remain somewhat aligned with the global trend to ensure that the impact of the frequent rate revisions by the Federal Reserve of the US and several other central banks is minimised in terms of outflows from the emerging markets. Stability in our foreign exchange market is another ‘ask’ before the RBI. Pressure on rupee against USD would be inflationary, the chamber note said, appreciating the RBI for striking a fine balance in the forex rates.
On specifics, the chamber suggested continuation of the NPA classification norms following the outbreak of the Corona pandemic, for the MSMEs. It said MSMEs which got classified as NPAs due to pre-pandemic slow down, continue to face challenges by post pandemic disturbances.” Hence, we suggest a one-time relaxation in Income Recognition and Asset Classification (IRAC) norms to MSME units which have been classified as NPA but continue to operate”.
In order to encourage retail participation in the Government securities, the ASSOCHAM suggested tax incentives in different forms, including for the senior citizens and others.