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RBI's Inflation-Centric Policy Missing Big Picture: India Inc

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[India Inc today slammed RBI's 'inflation centric policy' to keep interest rates unchanged, saying the central bank has missed the bigger picture at a time 'when millions of livelihoods are under threat due to declining GDP growth'. "It needs to be understood that with a steadily declining GDP growth, millions of livelihoods are under threat and therefore, a very inflation-centric policy measure appears to have missed the bigger picture," CII Director General Chandrajit Banerjee said. In a scathing attack to the RBI, Ficci said: "The RBI decision to not reduce the repo rate is even more difficult to understand in light of its own admission that 'the persistence of overall inflation both at the wholesale and retail levels, in the face of significant growth slowdown points to serious supply bottlenecks and sticky inflation expectations'." RBI, however, defended its decision of not tinkering with the rates, saying in the current growth-inflation dynamic, several factors were responsible for the slowdown in activity, particularly in investment, "with the role of interest rates being relatively small". It is not clear at all how the supply bottlenecks and high level of vegetables and protein prices, which is the main cause of persistent inflation, will be tackled by keeping interest rates high, Ficci added. Due to lack of reforms, coupled with continued high interest rate policy by the RBI, the economy is headed for a long period of 'slowflation' which will bring us closer to a major crisis, the chamber added. "Therefore, a cut in the repo rate would have been very timely and may have provided some boost to the already flagging growth," Ficci Secretary General Rajiv Kumar said. Expressing similar sentiments, Assocham President Rajkumar Dhoot said: "A cut in the policy rates could have given some boost to the industrial sector and helped the economy regain the growth momentum. This is more so when the fiscal situation does not allow much leeway for introduction of any fiscal stimulus." The wholesale price-based inflation was 7.55 per cent in May. At the retail level, the Consumer Price Index (CPI)-based inflation for May was 10.36 per cent. Economic activity in 2011-12 moderated sequentially over the quarters to take growth to a 9-year low of 5.3 per cent in Q4. For the entire fiscal too GDP growth rate plunged to 6.5 per cent, lower than the 6.7 per cent reported during the peak of post-Lehman collapse credit crisis, triggered in 2008. Besides, the Index of Industrial Production (IIP) increased by just 0.1 per cent in April 2012. Car makers and real estate players also expressed disappointment with the RBI's decision to keep rates unchanged saying the sectors, which are already reeling under a slump, will continue to suffer due to the high interest rate regime. Firms, including Maruti Suzuki, Hyundai, General Motors, Hiranandani Constructions and CHD Developers, said a rate cut would have helped in pushing growth. "It (rates remaining unchanged) is a disappointment for the auto industry. For the car industry, it is very important that the interest rates come down as 70 per cent of sales are financed," Maruti Suzuki India Chief Operating Officer (Marketing and Sales) Mayank Pareek told PTI. The sluggish demand will continue as sentiments are still low, he added. Expressing similar views, Hyundai Motor India Ltd Director (Marketing and Sales) Arvind Saxena said: "With the GDP growth rate coming down, industry was expecting RBI to ease interest rates, in that sense it is disappointing." (PTI)