Whose Interest it is to lower the repo rate

The RBI's decision to lower    the repo rate must have caused some satisfaction among the corporate groups whose whiz-kid economists have been relentlessly arguing that ease of doing business is helped by lower interest rates. On the other hand, the share market is likely to receive a boost. Now, the point is whether the corporate lobby, euphemistically called the 'industrial lobby', lacks funds for investment. The corporate groups believe in the philosophy of profit maximization, and they, like the god vamana, have three feet, one in industry, and another in trade and a third in finance. It is also difficult to believe that they do not have enough funds for industrial investment. A fall in the rate of interest may well lead to a diversion of funds in trade, which has a large inflationary potential. A monetary solution may not always be conducive to increased production and employment, given the ruling ideology of resorting to increasingly capital-intensive technology as the means of paring costs. In this case, the impact on the employment situation will be minimal, if not altogether zero. An alternative policy, a Keynesian one, is likely to be more fruitful in this case. And, investment in shares? Why should the common people run for risky purchase of shares by their hard-earned savings? Another point to be noted is that there are millions, mostly aged persons, who keep their life-time savings in banks and post-offices and live on the interest they receive. Their incomes will fall, and they will be greatly inconvenienced. Hurting the interests of these modest and low-income persons in the interests of corporate groups is certainly nefarious.

Frontier
Vol. 51, No. 52, Jun 30 - Jul 6, 2019