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Real Interest Rates Burden On 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

1interest_r.ebfaa099f3d0923b14a0.webp

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 in the process destroy any growth potential that the country has unless fast corrective action is taken soon.


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