Mumbai: Hope for the revival of the economy lies heavily on the new government that comes in after May 16 when the election results will be announced, but India Inc feels that low interest rates are an imperative for the revival of investment.
Sidharth Birla, Ficci president, told this newspaper that “various surveys of FICCI indicate that the availability of credit and high lending rates add to significant factors for holding back investments.”
Similarly CII’s director general Chandrajit Banerjee says, “economic theory posits an inverse relation between investment and interest rates, the reason being that higher interest rates raise the threshold rate of return that makes an investment profitable.”
Echoing concerns of consumers, Assocham’s secretary general D.S. Rawat said “consumers too have been hit by the high interest rates and have not been able to benefit from the easy loans which are being offered by banks.”
The RBI has however maintained in its most recent Macroeconomic and Monetary Development 2014-15, that the downward spiral in growth is caused in large part by “structural factors that impeded investment activity.”
The other reasons cited were “decline in savings, persistently high inflation and low business confidence.” However Mr Birla said “Revival of the capex cycle is critical to drive the economy towards higher growth and generate jobs.”
Mr Rawat said if interest rates were low consumers would have been able to buy consumer goods and other items which could have given a boost to the industry and lead to investment by the industry. “Reducing interest rates is therefore extremely important for recovery of both consumer and investment demand,” he said.
