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
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