Response to Dr. Swamy’s assertions on interest rates and NPAs


(This was published in The Hindu on the 20th of September 2015 in response to Dr. Swamy’s article “The Way Out of the Economic Tailspin”)

Subrahmaniam Swamy complaining that the RBI governor keeping the interest rates high has led to the slowdown of the manufacturing sector is wholly unfair and stands contradictory to the issue of increasing non-performing assets (NPA) that Dr. Swamy also mentions in his own article in your newspaper. While increasing interest rates to control inflation by cutting off the excess liquidity in the market is a time tested method for controlling inflation, irresponsibly lending at unnaturally low rates is believed to have caused the global recession of 2008. Moreover, uncontrollably high amounts of money floating around in the market leads to unproductive endeavours  and in the process creates more NPAs. Finally, we should also not forget the recent incidents when the banks refused to lower their borrowing rates even after the RBI reduced its interest rates.

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