NEW DELHI - Indian businesses are getting squeezed. As economic growth slows and inflation sinks they have little ability to raise prices without losing sales, and yet they are getting almost no relief from borrowing costs with lending rates remaining high.
The rise in India’ real interest rates - the comparison between the inflation rate and the rate people pay to borrow - will be a major headache for whoever wins India’s general election which lasts from April 11 to May 19. Prime Minister Narendra Modi and his Bharatiya Janata Party are expected to get a second term.
The facts are simple. India’s retail inflation rate has dropped to below 3 percent from more than 10 percent in 2013. In the same six-year period, bank borrowing costs for manufacturers and retailers have declined only marginally by about one percent from over 13 percent, business leaders say. India’s economy lost momentum in the October-December quarter, reducing the annual rate of growth to 6.6 percent, the slowest pace in five quarters.
The RBI is expected to cut its benchmark lending rate, the repo rate by 25 basis points to 6.0 percent this week, a Reuters poll of economists showed. It has cut policy rates by less than 2 percentage points since April 2012.