The Federation of Andhra Pradesh Chambers of Commerce & Industry has urged the Reserve Bank of India for a higher percentage of interest rate reduction to boost industrial production.
“Given the current industrial and economic scenario, there is an urgent need for the RBI to reduce interest rates not by a token of 25 or 50 basis points, but by 200 basis points,” the trade body said in a letter to the RBI Governor.
It pointed out that for India to reach China in terms of industrial production, an industrial growth rate of over 10 per cent was required. “The rates in India have been very high for the last two years, which had a negative impact on industrial activity. The IIP numbers are heading towards zero, when IIP levels below 5 per cent could be disastrous,” Fapcci said.
Admitting that high rates were important to keep inflation in check, in India inflation is more due to supply constraint, it said. “Only excess capacity can reduce the artificial scarcity in the market that is leading to inflation. High interest rates also adds to high inflation in a lot of areas, including housing and durables,” Devendra Surana, president of the trade body, said.
He also pointed out that interest rate differential between India and the rest of the world was at a historical high, which was putting domestic firms at a competitive disadvantage.