Apex industry chambers on Wednesday praised RBI Governor Raghuram Rajan for his decision to keep policy rates unchanged and thereby not punish economic growth.
With Rajan not disappointing industry on their request to refrain from interest rate hikes, there was a palpable recognition that focus on growth is back in the air.
“This is clearly reflected in the negative industrial growth witnessed in the recent past. Not only that, a discernible slowdown has been witnessed in the services sector as well. At this juncture, we certainly need to push all buttons to safeguard growth and revive investor sentiment,” she said.
Several of FICCI's recent studies and surveys have pointed out that high interest rates are a dampener and have been a major impediment to new investments and overall growth.
“We are happy that the RBI has taken cognisance of the weak state of the industrial economy and hope that the next move will be in the direction of lowering of policy rates,” she added.
Striking A balance According to Confederation of Indian Industry Director-General Chandrajit Banerjee, while being fully cognisant of the imperatives of anchoring inflationary expectations, CII is of the view that in the coming months, owing to a good agricultural performance, the prices of food items would moderate.
With the rupee having stabilised, the fuel prices would also not see any sudden increase. To some extent that obviates the need for further monetary tightening, Banerjee said, adding that the RBI “has demonstrated restraint and foresight to strike the right balance between inflation and growth.”
CII has maintained that the current spike in inflation is a supply-side phenomenon and therefore, a tight monetary policy would hurt growth while proving unequal to the task of tackling inflation. Nevertheless, inflation is a problem which cannot be ignored and therefore,
reading situation WELL Assocham President Rana Kapoor lauded the RBI Governor “for not being over-reactive to the noise of headline inflation and his brilliant forward reading of the situation that suggests that food and vegetable prices are softening and there was no merit in further punishing growth.”
“We also would agree with the RBI Governor that a pause on interest rates despite spike in inflation, for now, should not be taken as being a soft stance on price rise,” he said. His commitment to see stable prices is very much reflected in cautionary words which suggest that should there be a need, the central bank would remain vigilant and take action.
However, there is a strong case for the banks to cut the lending rates in the wake of ample liquidity in the system. They are sitting on big cash which should be finding ways into productive investments. The bigger banks should take a lead in this regard now that the RBI has paused for the time being.
For inflation to come down, the Government also needs to act and achieve fiscal consolidation not by compressing expenditure but by way of raising resources through disinvestment, as clearly pointed out by the RBI Governor.