Rajan cautions on inflation with India Inc demanding rate cut
A day after Prime Minister Narendra Modi assured there will be no inflation in essential commodities affecting the common man due to the Goods and Services Tax, outgoing RBI Governor Raghuram Rajan too echoed the same sentiment with a caution but industry appeared half satisfied and voiced concerns about rate cut.
“The economic situation is improving and a further cut in policy rate at this juncture would have been well timed,” FICCI President Harshvardhan Neotia said.
PHD Chamber of Commerce President Mahesh Gupta said, “There is a lot of scope to reduce the repo rate as good monsoon is visible and inflationary expectations are benign.”
At this juncture, the economy should be supported by lower interest rates to enhance the demand for durables and to boost the manufacturing sector, said Gupta, observing that the cost of credit to businesses is high when compared with many competitive economies, impacting not only the domestic but also the international markets.
On the growth front, the RBI maintained its projection of 7.6% on a gross value addition basis, saying the favourable monsoon which is 3% above the average which raises agricultural growth and rural demand and higher consumption on the back of the 7th Pay Commission implementation.
Engineering exporters’ body EEPC India Chairman T S Bhasin pointed out that world trade has remained sluggish in the first half of 2016.
“Thus, challenges are likely to stay making it imperative for the Indian exporters to become competitive, for which an accommodative interest rates are a must. The interest rates form a significant cost of the shipments for the exporters, they must come down,” he said.
Industry body Assocham said it looked forward to formation of an institutional framework for deciding the policy interest rates in sync with the inflation and growth.