B Muthuraman, President, Confederation of Indian Industry (CII) said, "Industry is already reeling under the impact of rising raw material costs and an increase in interest costs will be an added burden". The RBI's increase of repo rate by 50 basis points will dampen the investor sentiment.
CII had recommended that the RBI should moderate interest rate hikes. Increase in interest rate will increase the operating cost for the companies and it will make businesseses postpone their investment plans. And this decline in investments will be a serious blow to the growth of the Indian economy.
With this round of interest rate increases, both the consumption and investment demand will be negatively impacted. While CII had earlier projected GDP growth for 2011-12 would be in the range of 8.0 - 8.5%. The current hike in interest by RBI and its guidance indicates a bias towards 8.0%. On the inflation side, CII is concerned that it has been persistently high.
However, given that much of it is being imported through high global oil and other commodity prices, there is requirement within India to address domestic supply side constraints, which are within the action domain of the Government.
CII believes that the Government should focus on supply-side measures to help growth. These would include reforms in the agricultural sector to develop better market linkages, fast-track reforms to free up land for industrial and infrastructure purposes, developing the corporate bond market for availability of long-term funds and opening up more sectors to FDI.
The CII has also recommended to identify and fast-track implementat 100 mega-projects. “The institution of a project monitoring body which will identify key projects and ensure their implementation within specific timelines will go a long way in keeping up the growth momentum," said Mr. Muthuraman.