With the government further easing rules for foreign direct investment in India, industry chamber Ficci has hoped the Reserve Bank of India will complement this move by lowering interest rates further to aid the flow of funds to industry.
“Foreign direct investment flows are increasing. The appetite for new investments amongst domestic investors will also start increasing and it will be the right time for the central bank to aid the flow of funds to the industrial sector as well as make the same available at a lower cost than what is available today,” Ficci president Harshavardhan Neotia said in statement .
“The recent overhaul of the FDI policy framework is again an attestation of the government’s commitment to make India a magnet for investors,” he said.
“We hope the central bank will continue with the reforms process in the banking sector and at the same time enable flow of funds to the industrial economy for productive use at reasonable rate of interest,” Neotia said, referring to the RBI’s directive to state-run banks to deal with their massive non-performing assets, or bad loans, and clean up their balance sheets by March next year.
Earlier this week, the government announced major reforms in India’s foreign equity norms, notably in aviation, defence production, pharmaceuticals and food processing sectors, further opening the doors for the inflow of enhanced overseas capital.
The whole approach is to make the process of FDI approval “as far as possible automatic”, Economic Affairs Secretary Shaktikanta Das said here after the announcement.
Meanwhile, RBI Governor Raghuram Rajan last week announced his decision to return to work in academics at the end of his term in September, leaving the possibility of him overseeing only another bi-monthly monetary policy review in early August.
Rajan had retained the RBI’s key lending rate unchanged at 6.5 per cent in the policy review held earlier this month.
The Ficci president on Sunday recalled the “outstanding contribution” of Rajan following his decision not to seek the second term, and hoped an able replacement for Rajan will be found.
Rajan became RBI governor in 2013 at a time when the US Federal Reserve had declared its intent to wind down its stimulus programme and the rupee had plunged in value in respect of the US dollar on fears of a spiralling current account deficit.
In a series of measures, Rajan managed to stabilise the currency, which also helped to bring back foreign investors.
It will be the first time in 24 years that the RBI governor has departed after a single three-year term.
In this context, it is being felt that the government’s failure to retain Rajan will be seen by the world as India’s non-approval of his policy against inflation and the huge stressed assets of the banking sector.