Image for post
Image for post

Real Interest Rates are burdening the Indian Businesses

In recent months there has been a spate of news of stress in Indian businesses, both financial and non-financial businesses. Commentators are assigning various causes for the same.

However, in our view, the main cause of this stress is the unbearable burden of astronomically high real interest rates charged by the Indian banking industry, especially private sector banks, to Indian businesses.

The chart below shows real interest rate burden on Indian businesses. The real interest rate for each month is computed as average bank lending rates for the previous twelve months minus average CPI inflation for the same previous twelve months. The numbers are percentages per annum.

Chart 1: Real Interest Rates Burden on Indian businesses

Real Interest Rates Burden on Indian businesses
Real Interest Rates Burden on Indian businesses

Source: Decimal Point Analytics

The real rates have moved from about 2% pa in 2013 to about 7% pa in 2019. These usurious rates will kill off Indian businesses and any in the process destroy any growth potential that the country has unless fast corrective action is taken soon.

This article was first published here

Decimal Point Analytics is a 15-year-old, financial services company providing Research, Data Management Solutions, and Advanced Analytics Services.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store