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Why Reserve Bank of India should cut CRR levels

20 9 16

India’s investment cycle has been in a trough for several years now. And it could take at least a couple of years more for it to crawl out of that trough. Apart from the fact that capacities in most sectors seem sufficient for some time, there is a shortage of equity capital and a good many companies remain over-leveraged. But even if these factors improve, real interest rates in the economy are high. While a drop in the real rate is unlikely to prompt promoters to add capacities, it will make a difference at the margin and that is not to be sneezed at given the pitifully small greenfield investments that the private sector is making today.

Real rates are unlikely to fall sharply in the near term because inflation is expected to........

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