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Last Updated : Jun 07, 2019 09:51 PM IST | Source: CNBC-TV18

RBI's 25 basis points rate cut not enough to spur demand, says M&M's Pawan Goenka

Pawan Goenka, managing director, (M&M) said the rate cut by RBI is insufficient to spur demand in the automobile sector, which has been reeling under falling car sales in recent months.

CNBC TV18 @moneycontrolcom

The Reserve Bank of India's (RBI) monetary policy repo rate cut of 25 basis points on Thursday has failed to cheer the automobile sector, with leading automaker Mahindra & Mahindra (M&M) voicing its angst against the purported inadequacy of the action.

Pawan Goenka, managing director, (M&M) said the rate cut by RBI is insufficient to spur demand in the automobile sector, which has been reeling under falling car sales in recent months. “I don’t think that 25 basis points policy rate reduction by itself is enough,’ he said in an exclusive interview with CNBC-TV18 and lamented the failure of banks to pass on the RBI's earlier rate cuts.

Car sales in April 2019 fell nearly 16 percent, the worst in eight years, Society of Indian Automobile Manufacturers (SIAM) data showed. It was also the 10th consecutive month of decline in car sales in India.

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Car sales are an important metric of a country's growth rate. India's GDP growth in the fourth quarter ended March 31, 2019 fell 5.8 percent — the lowest in five years.

The RBI on June 6 said it expected India's GDP growth rate to fall at 7 percent in current fiscal from its earlier estimate of 7.2 percent.

It is this reason, combined with controlled inflation, which made the RBI's Monetary Policy Committee (MPC) change its repo rate stance to 'accommodative' and cut benchmark repo rates by 25 basis points, at 5.75 percent. Market experts and analysts are expecting a further 25 basis points cut in the coming months depending on the much-needed monsoon for the agriculture sector.

The RBI has cut repo rate by 50 basis points before Thursday but India's financial sector has transmitted only 21 basis points of these to its customers.

Goenka highlighted this aspect of the RBI action. “How much of it gets transmitted remains a question mark and as we know that the previous 50 basis points hardly anything has been transmitted. We do need the rates to come down on the ground for retail financing to make a difference," he said. "I think 10 out of last 11 months have been 'degrowth' in passenger vehicles and four to five months of 'degrowth' in tractors is what we have seen."

On M&M’s bread-and-butter tractor segment, Goenka said, "I will have to wait for monsoon. If we are at about 96 percent of the normal monsoon and if we have a delay of not more than a week to ten days then I think we should be okay.”

Goenka said historically, the tractor industry grows at 8-10 percent on a long-term average. “If I look at the last five years, it is 4.5 percent, so there is room for growth. 5 percent is a reasonable expectation.”

DS Pai of India Meteorological Department (IMD) is expecting the monsoon to hit Kerala's coast in the next two days, he told CNBC-TV18 on June 6. Last week, his office said India is likely to experience an average monsoon this year.

The IMD defines average rainfall as between 96 and 104 percent of a 50-year average.

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First Published on Jun 7, 2019 04:32 pm
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