The Reserve Bank of India’s (RBI) recent policy decisions, as outlined by Governor Shaktikanta Das, focus on stabilising inflation and revitalising growth, which hold significant implications for the Indian manufacturing sector.
Key among these is the decision to maintain the repo rate at 6.5%, ensuring that borrowing costs remain stable. This provides relief for manufacturers facing rising input costs and fosters an environment for investment in capital-intensive projects. By prioritising price stability, the RBI aims to restore consumer confidence and spur private consumption, critical for sectors like FMCG, automobiles, and consumer durables.
“The RBI’s decision to maintain the repo rate at 6.5% with a neutral stance reflects a strategic approach to balancing inflation management with economic stability. While a rate cut could have further bolstered economic activity, this policy instills confidence among infrastructure, EPC and real estate sectors that rely heavily on debt financing. By signaling a stable economic environment, it encourages private investment in infrastructure, complementing sustained government support and fostering long-term growth opportunities.” Sanjay Kumar Sinha, Founder and Managing Director, Chaitanya Projects Consultancy
Manufacturing saw a sharp decline in Q2 FY25, with growth at just 2.1%. However, high-frequency indicators signal recovery, aided by government capital expenditure and easing supply chain pressures. Initiatives such as reducing the Cash Reserve Ratio (CRR) to 4% will inject ₹1.16 lakh crore into the banking system, ensuring greater liquidity. This measure is expected to ease credit availability for MSMEs, a crucial segment for India’s manufacturing landscape.
“For capital-intensive sectors like manufacturing, this decision ensures liquidity remains accessible, enabling companies to secure financing for large-scale projects at manageable costs. The neutral stance provides much-needed financial flexibility, supporting infrastructure development and boosting demand in key sectors such as construction equipment, which are instrumental in driving India’s progress.” Rajan Luthra, Chief Financial Officer of ACE- Action Construction Equipment Limited
RBI’s focus on global trade resilience and the robust performance of India’s services exports augurs well for export-oriented manufacturers. With merchandise exports growing by 17.2% in October 2024, manufacturing hubs focusing on electronics, textiles, and engineering goods are poised to benefit from sustained external demand.
“The continued shift towards a neutral stance suggests that the central bank’s focus is gradually moving from inflation control to supporting growth. At this point, a rate cut would be more beneficial for consumers, including home buyers, as borrowing costs remain high despite the unchanged repo rate. The growth in home loans has slowed, and consumption among lower-income groups has significantly decreased, as witnessed in sharp moderation in sales of affordable housing.” Shishir Baijal, Chairman and Managing Director, Knight Frank India.
Inflation, particularly food-driven, remains a concern, denting disposable incomes and dampening demand. However, projected easing in Q4 FY25, supported by strong agricultural output, could drive demand recovery for consumer and industrial goods.
“With GDP growth rates moderating and with private sector capital expenditure yet to pick up, perhaps they would signal soft interest rates sometime in the near future. CRR reduction by 50 bps should improve liquidity during the busy season, which should help with working capital management. The MSME sector would greatly benefit from a benign interest rate regime and have much more incentive to upgrade and modernise operations, leading to a significant competitive advantage.” K V Srinivasan, Director and CEO at Profectus Capital
The RBI’s introduction of advanced AI frameworks for fraud prevention and enhancements to FX-Retail platforms underscores a push for technological modernisation, benefiting manufacturers by streamlining transactions and reducing risks.
The RBI’s measures—steady interest rates, liquidity infusion, and inflation control—aim to create a balanced environment for the manufacturing sector to recover and thrive. By addressing immediate financial constraints and fostering long-term stability, these policies are poised to accelerate India’s journey towards industrial resurgence and global competitiveness.
