As widely expected, the Reserve Bank of India opted for status quo in key interest rates. It was third time in a row that the apex bank kept key repo rate, the rate at which it lends to banks, on hold at 6 per cent. Consequently, reverse repo rate at which it borrows from banks stands at 5.75 per cent. Interestingly, RBI tweaked with interest rates only once during the current fiscal year and that was in August when it reduced repo rate by 25 basis points from 6.25 per cent. That’s a clear indication as to how difficult it has been for six-member Monetary Policy Committee (MPC) to steer monetary policy this fiscal.
However, RBI has done a good thing by initiating measures to help ailing micro, small and medium enterprises (MSMEs). They will now get 180 days to clear their dues. At present, a loan is declared as a non-performing asset (NPA) if the borrower fails to pay installments for 90 days or three months. But demonetisation exercise and subsequent implementation of Goods & Services Tax crippled the MSME sector and consequently many units turned sick across the country. In India, MSMEs account for 45 per cent of manufacturing output, 40 per cent of total exports and employ close to 4.5 crore people. Therefore, any adverse impact on this sector will have wider ramifications not only for the economy, but also in employment generation. As an industry body representative has said, this move will give much-needed breather to ailing MSME units.
On GDP front, RBI lowered growth forecast yet again for the current financial year. It now expects economy to expand by 6.6 per cent this fiscal, slightly lower than the earlier forecast of 6.7 per cent made in its December policy review. And the growth forecast for next fiscal now stands at 7.2 per cent. “There are early signs of revival in investment activity as reflected in improving credit offtake, large resource mobilisation from the primary capital market, and improving capital goods production and imports,” RBI said. But the apex bank seems to be overly optimistic on growth prospects. With interest rates still ruling high and crude oil prices rising, it’s unlikely that GDP growth will pick up pace in near term.