Bimal Jalan: India need to lower interest rates

Bimal Jalan, the top official at the Reserve Bank of India from 1997 to 2003, said in an interview yesterday that India needs to cut interest rates further, as the two recent reductions have not made a tangible difference to the affordability or availability of credit to consumers or businesses.

He has called for policymakers to act as necessary so that banks are able to cut their loan rates and stimulate the economy into action.

This has been accentuated by the fact that global commodity prices have fallen, coupled with the prospect of a good which is expected to bring down inflation drastically.

The Prime Minister’s Economic Advisory Council Chairman, Suresh Tendulkar, has argued these points as his organisation rallies for a further reduction in interest rates.

There has been a distinct lack of liquidity in the Indian banking system as a result of the global financial crisis and this has resulted in lenders having to be far more prudent in their selection of businesses and consumers.

This has resulted in a fall in domestic demand to the determent of companies such as Ashok Leyland, the nation’s second-biggest maker of commercial vehicles, who are having to make cut backs in investments as well as job cuts caused by falling sales.

Since funds have all but dried up due to the fall of credit markets, the demand for domestic loans has steadily increased but bank rates even for the best, most reliable clients is still at an average of 13 percent.

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