Industry asks RBI to cut interest rates, boost investments

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Industry on Sunday asked RBI to go in for a bold move and cut interest rates at least by 50 basis points (bps), besides releasing more funds in the banking system to arrest slowdown in economic growth.

While Assocham President Rajkumar Dhoot demanded 50-100 bps reduction in the short-term lending rates and a cut in cash reserve ratio (CRR) by equal ratio, CII wanted the central bank to focus on growth.

Terming the current economic scenario as critical, Dhoot said, "One delayed step or any indecisive move is bound to wreck the industrial and service sectors."

Several of the interest-sensitive segments like banking, automobiles and housing are in the grip of slowdown. Thus, RBI must use this opportunity for bold announcements, he said in a statement. CII said there is enough room for the RBI to cut interest rates as warranted by the slowdown in industrial growth.

"After the release of the inflation data for May, the industry feels that there is enough room for the RBI to cut interest rates," CII Director General Chandrajit Banerjee said. Headline inflation moved up to 7.55 per cent in May compared to 7.23 in April.

RBI is scheduled to announce its first mid-quarter review of monetary policy tomorrow. In its annual credit policy for 2012-13 on April 17, it had slashed short-term lending rate or repo rate by 0.50 per cent to 8 per cent to prop up the economy.

The industry has been clamouring for relief from the government on the plea that demand slowdown, rising input costs and high interest rates have affected their business.

Talking about India's exports, Dhoot said, exports declined by 4.16 per cent to USD 25.68 billion in May due to unabated slump in global demand and slowdown in domestic industrial growth.

The country's industrial production growth rate slowed down sharply to 0.1 per cent in April compared to 5.3 per cent in the same period last year mainly on account of contraction in capital goods and dip in manufacturing output.

CII said India has entered a 'vicious cycle' in which low growth is affecting investor confidence which in turn is leading to capital outflows and depreciating currency.

"This is adding to inflationary pressure. Thus, the RBI should not hesitate to cut interest rates," it said.