After the Industrial Production has plunged so badly in India, from 4.6 percent to 0.1 percent within a month, it is staggeringly obvious that the Repo Rate, reduced from 8.5 percent by 50 basis points has not been enough.
I guestimate a reduction of 125-150 basis points this month would do the trick. Industry as well as consumers need access to cheaper credit. A repo rate of 8 percent is far too high; it may help the people with savings to earn the interest they need to maintain their lifestyles, but it does not do industry and the growing band of consumers any good at all. They need access to cheaper credit, and a cut in the repo rate would enable the regional banks lend to their customers at interest rates which they can afford to borrow at and create profit and wealth; this is turn feeds into the economy.
This is necessary to enable people survive the harsh economic climate that the world has worked so hard to come out of. The mature economies have cut their interest rates to the bone, and made cheaper credit available, evidence the new measures announced by the Chancellor in England.
Montek Singh Aluwahlia says the government is not in denial about the slowdown, and Dr. Manmohan Singh is hoping the G-20 summit will offer some solutions, some silver bullet.
I would respectfully suggest that the silver bullet solution tool is with India already. They just have to cut the interest rate further, perhaps even rapidly. That was the lesson surmised from the slowdown worldwide in 2008, as measured by the Economic Cycles Research Institute.
When the silver bullet is at your disposal, you have to deploy it. This tool must be utilised to avoid a further slowdown. The hard-working people of India must not be let down. For this, I pray.