Do not cheer for RBI repo rate cut. It means everything and yet results in nothing. Because the economy is choked up. Not for any fault of RBI. It has done everything it could, within its monetary policy authority.

But India's public and private sector commercial banks have refused to budge. They have collectively choked up the domestic economy by refusing to pass on the repo rate cuts to the consumers and the industry for the past 5 years. Consistently high interest rates have dissuaded the industry from borrowing to invest in greenfield projects and plant expansions. India's private investment is at a 14 year low, according to CMIE. High interest rates have also had a direct bearing on lower consumption of automobiles, consumer durables and even FMCG. It has caused India's consumption engine to falter as well.

It was January, 2014, when the RBI reversed the trend in repo rates by moving from rate hikes to rate cuts. Since then, RBI has reduced rates 10 times (and raised briefly twice) by a massive 2.25 per cent, down from 8 per cent to 5.75 per cent. In comparison, India's largest bank, the State Bank of India from whom most banks take their cues, has reduced its lending rates by just 0.6 per cent-from 10.15 per cent to 9.55 per cent.

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Such defiance is unprecedented. But FinMin and the RBI are happily playing wink-wink. They seem to believe in institutional independence. But, Hey, haven't we heard that before! If the FinMin can push out non-pliant Governors of RBI, surely it can push banks-some of which are majority or wholly-owned by the government of India. They have failed to coax, cajole or hammer the banks to fall in line. "Transmission of the cumulative reduction of 50 bps in the policy repo rate in February and April 2019 was 21 bps to the weighted average lending rate (WALR) on fresh rupee loans," says RBI.

Commercial banks have reasoned that they need time to adjust their commitment to high interest deposits before they pass on repo rate cuts to consumers and industry. But they've been given a long rope since RBI began cutting lending rates in 2014. They had 5 years to adjust their loan portfolio. There is no excuse any more.

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