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Infrastructure Development Companies Bottleneck


Yes its true that inflation cannot be controlled by using the traditional financial planning methods , we must question the traditional methods of financial methods which hold no good in the current times like reducing borrow and spend thereby reducing the demand and therefore the inflation mostly the bank lending is now a days is to the retail sector.

In India the bank landing to producers and intermediaries , it would be fair to say that the interest rates in India today are more an input cost than a demand determinant , so it should be fair to at least test that the direct inflationary impact of higher interest rates outweigh as the direct disinflationary impact of lower aggregate demands .The answer is yes it depends in Indian context , because almost eight years back the personal loans were growing at 30% plus , rates hikes then would have had a great impact on consumption on consumption demands and asset prices and thus outweighing the  impact on input costs . In short we must ascertain the way so that the transmission is expected to iron out and not just pursue monetary policy by thumb rule to demonstrate the intent . Another angle is in relation to the impact of monetary policy   on investments, yes , do higher interests rates discourage investments particularly in the infrastructures , which not only gears up future capacities and increase medium term inflation prospects .



India is still a developing economy operating far below its production possibilities , and so also its yet to be seen to utilize all its natural and manpower resources , as its high time now as we are under - deploying our resources for this the credit goes to the policy makers and admin people . The GDP seems to miss the large supply side dimension and the response that normally one gets to this question is that RBI and monetary policy cannot impact infrastructure investments today and also that this is a fiscal and government policy issue. The biggest hassle to infrastructure investments today are outside the RBI, but equally companies and leaders do look at the cost of funds while evaluating existing and fresh capital investments..

Also we hear commonly that we are already indebted entities seeking to reduce their economic burden by switching over to cheap foreign currency funding so we need to have high interests rates but not for the inflation control  but for economic stability in the current  context .All we have so far done is   that we have outstretched corporate and banking balance sheets on the back of stuck infrastructure investments , a steep government borrowing programme that funds current expenditures rather than productive investments and to add to it the never ending  political and admin confusion.

We already have a large foreign debt, and we desperately need a long term interest rate differentials to remain a destination that attracts foreign flows essential to ensure external stability. Until this vulnerability reduces the confidence will not return in full and so we need higher interest rates .high interest rates comes with a huge cost. Interest rates are actually an input cost and higher rates will penalize infrastructure investments .and all this could trigger middle term inflation and macroeconomic stability for this we immediately need a direct relief to the infrastructure sector and give it the top priority. Of course the possibilities of leakages and political pressures have to be taken into account, and the red tapism . Its high time when we pull our socks up and give the infrastructure sector the much required boost so that this sector gets to its potential momentum.