Mumbai, July 24, (UNI) Global interest rates are now the lowest in 100 years and it is in sharp contrast with the situation prevailing in India and a few other emerging countries, according to Prof Errol D'Souza of IIM, Ahmedabad.
"High investment needs, equity market boom and good growth prospects in India have been causing not only huge capital inflows, but also sharp increase in interest rates. In fact, all these factors are inter-related," he said while addressing a workshop on 'India: Inflation, Interest Rates and Growth,' organised jointly by Indian Merchants' Chamber, (IMC) and Bombay Chamber of Commerce&Industry here today.
Among other experts who spoke at the workshop included Dr. Dilip M. Nachane, Director, Indira Gandhi Institute of Development Research and Dr Ajit Ranade, Chief Economist&President, Aditya Birla Group.
Prof D'Souza said that about four or five years ago, India's annual investment rate was hovering around 25 per cent. But because of certain government policies and response by the private sector, India's average annual investment rate soared to 36 per cent leading to a GDP growth rate of 9 per cent, thanks to rising expectations of growth, burgeoning consumer demand, increasing profitability and booming equity market etc.
"The huge current account deficit presently faced by India was mainly due to channeling resources to meet investment needs," said Prof. D'Souza. He pointed that India's dependence on foreign funds for investment purposes was minimal, a mere one or two per cent, which was the gap between its domestic savings (34 per cent) and investment rate (36 per cent).
He apprehended that an appreciation in the rupee value of real exchange rate could have contractionary implications for economic growth. "It is with this in mind, the Reserve Bank of India has now been buying foreign exchange to prevent rupee appreciation," he said.
Prof. D'Souza expressed concern about the 23.2 per cent decline in capital expenditure in the last budget.
Dr Dilip Nachane said that rise in interest rates carried different implications for different countries. "For instance, high interest rates may curb demand in countries like the US while it may curtail production and supplies in a country like India," he said.
The RBI's short-term measures were aimed to rein in liquidity for curbing inflationary forces, Nachane asserted.
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