A STICKY HIGH INTEREST RATE REGIME IS DETRIMENTAL TO NATIONAL ECONOMY AS A WHOLE AND DETRIMENTAL TO ECONOMIC GROWTH : A HIGH INTEREST RATE AS THE ONLY TOOL TO CONTROL INFLATION IS A BLIND PARADIGM OF SOME ECONOMISTS AND CENTRAL BANKERS


A STICKY HIGH INTEREST RATE REGIME IS DETRIMENTAL TO NATIONAL ECONOMY AS A WHOLE AND DETRIMENTAL TO ECONOMIC GROWTH : A HIGH INTEREST RATE AS THE ONLY TOOL TO CONTROL INFLATION IS A BLIND PARADIGM OF SOME ECONOMISTS AND CENTRAL BANKERS


Dear Readers,

Now that the General Elections 2024 of India, are over and a Popular Government of India is expected to be installed after June-04 ( tomorrow ), it is understood and welcome, whoever it may be..... most welcome and we welcome whole heartedly. 

What I am trying to say in this note is about :
A STICKY HIGH INTEREST REGIME IS PREVAILING FOR QUITE SOME TIME AND IT IS HIGHLY DETRIMENTAL TO THE NATIONAL ECONOMY, NATIONAL ECONOMIC GROWTH, AND ALSO HIGHLY DETRIMENTAL FOR THE INTEREST ( BENEFIT) AND PROTECTION OF THE SMALL BORROWERS AND COMMON PEOPLE OF INDIA.

Please see the pictorial and graphical presentation below:


You can see above, the RBI ( Reserve Bank of India ) was at 4% Repo Rate (the Normal Lending Rate of RBI to the Banks, who are in turn are lending to people of India ) as on April-2022, when the Covid-19 was just over ( by far ).
From April-2022, from 4% existing then, it climbed with the Repo-Rate at 6-tranches continuously to reach at 6.5% in May-2023 and from May-2023, it is sitting at that highest level without climbing down for more than a year to date as on June 03, 2024, and every time at every MPC ( Monetary Policy Committee ) of RBI the rate is being declared to be kept Status Quo, without change, in the name of Controlling Inflation.

This Repo Interest Rate being Charged by RBI is one of the Highest  of the World in comparable economies that can be compared with INDIA, you can see in the internet and compare the Repo Rates of the Central Banks of Other Nations of the World, around the Globe and realize this.

When the Repo Rate of RBI is 6.5% the Banks have to charge about 3-5% ( 3 to 5% ) more depending on their own Strength and Situations over all, to the Common People for lending. Therefore the Banks have been lending @ more than 9% to any level and beyond 10.5% to common people even for small mortgage loans to the Common People who are small borrowers in India, who need subsistence level credit for their survival and livelihood.  Which is a very Dangerous Situtation prevailing.

In the mean while, by citing this Sticky and High Repo Rate Prevailing at RBI, the Banks have increased the EMIs of even small Educational Loans and Mortgage Loans as much as to the extent of 10-20% of EMIs taxing the small borrowers in India very heavily by making it unaffordable to them.

In a small Mortgage Loan (Loan Against Property-LAP) of about Rs. 40 Lacs (Rs 4-million), the EMI has been revised upwards to the tune of about Rs. 8000/- which is almost 20% hike in EMI for the small borrower while earlier EMI was 20% lower. While Salaried Class borrowers have no such hike in Salaries in the Contemporary times, this kind of interest rate and hike in EMIs is just killing for the Common People of India.

Let me also tell you, this is not the fault of any Government of India which existed before the Elections 2024 or that is going to come after June-04, 2024. Because it is not managed by Govt of India, it is managed by the MPC of the Central Bank, that is RBI. 

It is the BLIND PARADIGM OF SOME ECONOMISTS AND CENTRAL BANKERS WHO INSIST THAT A HIGH INTEREST RATE IS ONLY TOOL TO CONTROL INFLATION OR FOOD INFLATION.
In fact a high interest rate regime is highly detrimental to National Economy and Economic Growth.
A High Interest Rate, in fact it adds to the Cost of Capital and Squeezes Liquidity and Purchasing Power in the Economy. The High Cost of Capital Adds with Spirallic Effect on costs of Production in the Economy every where, that the said Economists and the Central Bankers are not able to see because of their Blind Paradigm said above.

Understand how it affects the Spiralling Effect; A Truck Owner borrows capital at high cost to buy a Truck. Therefore he charges a high Trucking Charges for carrying the Goods in the Economy. The Manufacturer borrows at High Cost to Produce Goods that he has to price high to bear the cost and to generate profit. The Trader borrows the Capital at High Cost to carry in inventory, store and supply at the retail and wholesale markets. ...... Thus who has to pay it ultimately, the Common Consumer...
You read the news of today, both Amul and Mother Dairy have increased the Liquid Milk Price by Rs. 2/- per Litre citing the Increase in Costs of Production of Milk by the Farmers..... justified, they are the Benevolent Organizations of the Nation, catering to the milk needs of the huge common population of India.

Therefore, the High Interest Rate Regime being vouched by some Economists and Central Bankers in the name of Controlling Inflation as the Only Tool can go very wrong and poison the growth of the National Economy.

The Elections 2024 have been finished and gone, the Results will come tomorrow the June-04. understood well and in all fairness, one and all.

Therefore it is expected very sincerely and it is most logical, that the Government at the Centre that is going to come after June-04 is expected to force those Economists and Central Bankers ( even RBI for that matter ) to climb down from the Highest and Sticky level of High Interest Regime that is going on unchanged and being sticky since May 2023, as it was climbed up, it should be climbed down, in the National Interest and in the Interest of the Common People of India, for their Livelihoods and Survival with a soft interest rate regime, the much talked about inflation will fall in line over a period of time by appropriate management of Demand and Supply in the Economy.

Understand me right and the first and foremost action of the New Government after June-04 will be to attack and down the Highest and Sticky Interest Rate Regime.

With Best regards,
Dr. Nimain Charan Biswal,
Mumbai, India


About the Author: Dr. Nimain Charan Biswal is a B.Sc.(Agri. Science and Technology), M.B.A. and Ph.D.(Management Area ) by qualifications; and he has 38+ years of work experience in both industrial and development sectors in diversified fields of social importance. He has been educated at Orissa University of Agriculture and Technology (OUAT)-Bhubaneswar, Institute of Rural Management Anand (IRMA) and Gujarat University (with Resource Support of IIM-Ahmedabad). He is further educated at IIM-Calcutta, XLRI-Jamshedpur, Apple Computer Industries and Spar Inc., USA. He has worked for reputed National and International Organizations in Senior/Top Management Capacities at Board level as well as Managing Director and CEO. He is a management expert covering extensive areas from management in industrial sectors, management in agriculture and dairy, development management to management of public systems. He is a prominent professional of India and known Internationally as well. He lives at Mumbai in India.





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