Industry critical of hike in repo rate, CRR

June 25th, 2008 - 5:38 pm ICT by IANS  

New Delhi, June 25 (IANS) Industry lobbies have criticised the Reserve Bank of India’s (RBI) move Tuesday to increase the repo rate and cash reserve ratio. In a statement issued Wednesday, the Confederation of Indian Industry (CII) said it hoped the growth imperative would not be lost in the RBI’s effort at inflation containment.

“While fully appreciating the threat posed by high inflation, CII believes that action is required at the global level to deal with the current phase of price pressure, which is largely global supply-led,” said the CII statement.

Harsh Pati Singhania, senior vice president of the Federation of Indian Chambers of Commerce and Industry (FICCI), said while RBI’s efforts to tame inflation are understandable, Tuesday’s move would burden industry.

“It is important to note that Indian industry has been subjected to successive rate hikes over the last one and a half years,” Singhania said.

“These have substantially pushed up the interest cost for industry particularly in the face of acute international competition. The current rate hike will further add to that burden.”

Singhania said RBI’s latest move is not counter-cyclical. “We are already in a downward phase and this moderation in growth is clearly borne out by the IIP numbers,” he added.

FICCI said the industrial sector has slowed down somewhat, and the rate hike will accentuate that further. Subsequently, the path of overall GDP growth will also get influenced.

The chamber also said the inflationary pressure stems from supply side rigidity. “It is, therefore, imperative that policies are devised to ease these rigidities and increase supply of both primary articles and manufactured products,” it said.

FICCI said RBI should take a re-look at the interest rate structure at the earliest opportunity.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) feels though these measures would create liquidity crunch in markets and hike interest rates, “yet the pinch will be less painful than the double digit inflation”.

Assocham president Sajjan Jindal said the latest rate hike would affect industry’s domestic expansion plans, though global acquisition plans will continue as companies raise funds mainly from abroad.

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