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Hero MotoCorp’s Sud Says High Rates May Delay Capital Expansion

Ravi Sud, chief financial officer at Hero MotoCorp Ltd., India’s largest motorcycle maker, comments on the Reserve Bank of India’s decision to raise interest rates for the seventh time this year. New Delhi-based Sud spoke in a phone interview today.

On the impact of the rate increase on Hero MotoCorp:

“In our industry, a major portion of the sales come from rural market. The rural economy is thriving with good agriculture, high exports and schemes from the government. Those folks have money. On the supply side, the high interest rates may lead to delays or deferment of capital expansion plans. Down the line, when inflation is under control, global factors such as the European situation become normal and when the industry starts to grow, there may be a capacity shortage.”

On the recent depreciation of the rupee:

“As a country, we are a net importer. Our biggest import is oil. So, with a depreciating rupee, the impact on the overall economy is more inflationary. I don’t think the Reserve Bank of India will allow the rupee to depreciate below the 50 rupee mark as then they are fighting a lost battle, and the interest rate increases will be of no use. The current levels of the rupee are OK for exporters but where will you export to, especially with turmoil in Europe and the US?”

On the impact of inflation on economic growth:

“Inflation is galloping and not coming under control. Ultimately, the country will have to choose between inflation and growth. A compromise will have to be made. We started with a growth target of 9 percent, then 8.5 percent. Now the government is thinking about 8 percent. A couple of months down the line, once the second-quarter or third-quarter GDP numbers come, you’ll find it somewhere around 7 percent. The Reserve Bank of India has a choice between inflation and growth. That is a reality and the earlier we take cognizance of it, the better it is, rather than delaying everything and saying things are OK. Things are not OK.”

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