With the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) beginning its three-day deliberations today, Jyoti Prakash Gadia, Managing Director at Resurgent India believes rate hike in the June meeting is a certainty. In an interview with Kshitij Bhargava of FinancialExpress.com, Gadia said that a 20-40 basis point rate hike can be expected from the MPC. He added that inflation is not likely to ease immediately. Jyoti Prakash Gadia added that fiscal measures along with monetary policy action may put a check on inflation in the next 6-9 months. Here are the edited excerpts.
RBI has now begun the rate-hike cycle, do you think it will be aggressive going forward to tame inflation?
RBI is certainly facing one of the most challenging tasks at this point of time and needs to do tight rope walking, ensuring a balance between the inflation and growth trade-off. While the repo rate hike in the June meeting is a certainty, RBI is expected to keep it moderate and consistent, in order to avoid any undue volatility so as to support the revival of the growth which is still at a nascent stage. A rate hike in the range of 20 to 40 basis points is thus expected in the June meeting.
For how long do you believe the rate hike by RBI’s MPC continues?
The length of the rate hike cycle and its intensity is going to be directly dependent on how sticky inflation proves to be. The real concern is the oil prices and other supply-side constraints which have been accentuated due to the prolonged Ukraine war. Considering the long duration of inflationary pressures, the rate hike is expected to be continued due the rest of the financial year i.e upto March 2023.
With interest rates rising now, what does this mean for India’s economy and particularly for companies that were looking to raise funds?
The raise in policy rates by RBI does impact the lending rates of banks, and is going to make the loans costlier across all sectors and may lead to some initial hesitation among the entrepreneurs to borrow and expand their businesses. However, the overall investment opportunities are attractive thanks to the reformist agenda of the Government and investor-friendly policies under PLI and FDI. This may create alternate sources of funds over and above the regular availability of credit from banks.
Notwithstanding the rising interest cycle, the momentum for growth is expected to pick up with the right kind of policy support and facilitate the impact of the recent emphasis on infrastructure development and the removal of bottlenecks under the Gati Shakti program. Further, with cleaner and stronger balance sheets, the lenders are also expected to come forward and lend at competitive rates.
Inflation has been a big worry recently, when do you believe the worry will start to ease?
Wholesale inflation above 15% and retail inflation close to 8% in April indicates challenging inflationary pressures not easy to contend with. The spike in oil prices and fertilizer prices can be directly attributed to the Ukraine War, which has, in turn, led to widespread inflationary trends across the world. This is primarily an extraneous factor not under immediate control and merely monetary policy measures shall not suffice in the present circumstances. Inflation is not likely to ease immediately. The government has already reduced excise duty on petrol to partly reduce its prices. Similar fiscal measures, to supplement the monetary policy measures and an attempt to remove supply-side constraints may put a check on inflation in the course of the next six to nine months.
What do you make of the Q4 GDP numbers?
The Quarter 4 GDP numbers show a tardy growth rate of 4.1%, the lowest among the four quarters, due to localized Omicron impact and inflationary pressures. That has resulted in a lower full-year GDP growth rate of 8.7% as against previous estimates of 8.9%. The financial year 2023 projected growth rate has been revised downwards by most experts in the range of 6.4 % to 7.5%.
On the positive front, the Government expenditure on Infrastructure and the services sector trends indicate robust growth possibilities while FMCG and other consumer products are experiencing a dip on account of inflation and lower demand. However, the GST collection numbers are sustainable and core sector growth is also looking up. With a normal monsoon prediction by IMD, agriculture is also expected to contribute toward a reasonable growth trajectory. The uncertainties and volatility caused by the geopolitical situation seem to be the main deterrent in our sustainable growth objectives which need to be dealt with judiciously.