Inability to turn benign inflation into low interest rates hurting growth: EAC-PM


Mumbai: India missed the bus by not turning gains of lower inflation into low interest rates, which is pricking the economy on the growth front, a member of the economic advisory council to PM (EAC-PM) said on Tuesday.

Efforts should be mounted to lower the interest rate burdens for borrowers, and RBI’s pause had a “terrible” effect of costs for a third of borrowers going up by 0.25 per cent, Neelkanth Mishra, who is also the India strategist for Swiss brokerage Credit Suisse, said.

The comments from Mishra, who is a part-time member of the Prime Minister’s advisory council, come at a time when GDP growth has slid to a six-year low of 4.5 per cent for the September quarter and there have been a rash of downward cuts by analysts.


“The origin of this (economic growth slowdown) is our inability to follow through on our success in controlling inflation through lower interest rates,” Mishra said, speaking at the India Economic Conclave organised by the Times Network here.

He said inflation used to average over 7 per cent for over 60 years, and has come down 3.7 per cent over the last three-four years.

Mishra said it is not possible for the nominal GDP to grow at 14-15 per cent in order to help push up the real growth rates higher, which is the number after adjusting for inflation.

He said merely solving the troubles in the financial sector will not help the situation, and bringing down the effective rate of interest paid by borrowers is the need of the hour and expressed his displeasure at RBI.

“Because of the no cut response (by RBI) last week, the interest rates for nearly a third of the Indian financial system have gone up 0.25 per cent. In a slowing economy, I think that is terrible,” he said.

Apart from interest rates, India also needs to look at the capacity of banks to fuel the credit growth, he said, pointing out that the state-run lenders who were used to writing fat loan cheques may not be able to do so.

Meanwhile, speaking at the same event, fellow member on the PM’s panel and head of Kotak AMC Nilesh Shah said India needs to Encourage entrepreneurship, provide them enough capital at reasonable cost and enforce the rule of law for bettering its economic prospects.

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