The Indian economy is going in a very difficult phase since last 4 to 5 years and the reason is lack of demand in the economy from the consumption side, that’s why we called – missed opportunity. The only remedy is to increase the demand through consumption from various sectors which will give a boost to the manufacturing sector as well as the service sector to produce and serve more. But the central bank was not able to reduce the rate of interest and the reason quoted behind this was the higher rate of inflation.
Although we all have noted that the rate of interest was aligned with inflation, but inflation was not controlled even when the reserve bank of India kept the monetary policy on a tighter side. In recent times the inflation has come downward at a very low rate. Once again it has been proved that in Indian economic situation, it is not the higher rate of interest or the tighter monetary policy which controls the inflation, rather it is something else which controls it.
In this manner we have lost last three years in pushing up or pumping up the demand from the consumption side.
Nevertheless now the reserve bank of India has realised it and made a recent two rate cuts but our banking system has not responded to both the rate cuts. In fact I am wondering that instead of reducing the rate of interest the banking system in India is working as an opportunist institution and reducing the deposit rates first. Taking advantage of the situation, the banking system is not responding to the opportunity available in the Indian economy by passing on the rate cut to the consumers so that the demand should pick up more liquidity should be there in the economy.
I am hopeful that the reserve bank of India and the finance ministry will take a note of it and suggest the banks to do it fast. My opinion is it is the only liquidity factor which is resulting the lower demand and pulling the demand down although the numbers suggest that the growth in economy but on ground it is not visible and for that there should be more money in the hands of the consumers.
There are many ways in which the hands of consumers get a higher liquidity but that can be enforced or introduced in a different time intervals but the first step is to reduce the rate of interest and make the funds available at the low-cost.
Various sectors like consumer durables, auto, reality will get benefit out of it and will generate more employment corresponding to the higher income of the people. Moreover the cost of funds will also be lower for the infrastructure sector giving it more space to develop the infra projects at a faster pace which will be resulting in the higher growth and supporting almost every sector of the economy.
If we miss this chance of not working on the cost of funds it will be a disaster for the economy because we are standing at a point where there are a lot of foreign investments which are waiting to enter in Indian market as well as the growth in the other parts of the world is subdued which gives further benefit to the Indian economy to grow faster that is the reason I said it should not be a missed opportunity.
A Ph.D. in Applied Economics & Management from Barkathullah University, Dr. Khalsa is a renowned economist, eminent academician and a seasoned administrator. A young visionary & policy maker in the field of management education and also a renowned corporate trainer/consultant in the field of finance and capital market. He is the member of various committees like University Committees, Directorate of Technical Education and various academic institutions.