Will RBI's Rate Cuts and Liquidity Boost Revive India's Demand

Despite RBI's aggressive rate cuts and liquidity easing, structural constraints and weak demand raise doubts about their effectiveness in reviving India's economic momentum.

- TBG NETWORK

This year, the Reserve Bank of India (RBI) slashed policy rates by 100 basis points and cut CRR by 100 basis points, thereby injecting significant liquidity into the financial system. However, a report by Nuvama raises concerns about demand and consumption, questioning who will multiply the liquidity into money. The report raises the question of whether these measures will be sufficient to revive demand and economic momentum. Historically, rate cuts have been most effective when coupled with fiscal expansion or export rebounds. According to the report, the current scenario presents challenges on both fronts. With tax revenue growth slipping below national GDP growth, the government remains debt-averse and focused on fiscal consolidation. While corporate India, which is generati