Private capex not showing robust signs of revival, says MPC’s Ram Singh

Private investment in India is not showing robust signs of revival, according to Ram Singh, an external member on the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC).

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According to Singh, several metrics such as capital expenditure as a ratio of net operating margin, bank credit to corporates, and debt-to-equity are lower than what is required for 7-8 per cent growth. It was in this context the MPC cut the policy repo rate by 50 basis points (bps) to 5.50 per cent on June 6, as a broad-based pick-up in demand is needed for private investment to pick up.In an interview with Siddharth Upasani, Singh — Director of Delhi School of Economics — also discussed the future course of monetary policy and the outlook for growth and inflation, among other subjects.

The MPC’s decision on June 6 to tighten its stance to neutral while cutting the repo rate by 50 bps led to some confusion. Has the decision to shift the stance so quickly added to the uncertainty?Our decisions were guided by data and domestic priorities. Since the April meeting of the MPC, inflation prints have turned out to be significantly better than forecast, lowering the expected headline inflation rate to 3.7 per cent. Food price inflation is also expected to remain moderate. This created a unique opportunity for us to plan ahead and think of how much of a rate cut is possible in this cycle. Our and market's assessment was that there is enough room for a 50 bps cut in this cycle. The only question was whether we go for a 50 bps cut in one go or stagger it. Given that the actual inflation prints were lower than expected and a more-than-benign outlook, timely onset of monsoon, and stable commodity prices outlook, MPC decided to go for a 50 bps cut to boost demand and growth.