'Increase in interest rates may hit growth'

The raising interest rates leads to to increase in cost of capital is a matter of concern for the industry. Any further price increase by the Reserve Bank of India (RBI) will hurt the industry growth, said B Muthuraman, president, Confederation of Indian Industry (CII) and vice chairman, Tata Steel Ltd.

In an interaction with reporters at the sidelines of CII National Council Meeting in Chennai today, Muthuraman said major issues for the industry today are land acquisitions, cost of capital and commodity price.

“Cost of capital needs to be moderated. Because of interest rate already slow down started in the industry. In the last 15 months, interest rates went up by 10 times. Any further increase by RBI will stuck the growth and will hurt the industry.”

He noted already gross capital formation growth was only 0.5 per cent last quarter compared to 24 per cent growth in the first quarter of last year.

FDI flow dropped to $27 billion in the last fiscal from $38 billion in 2009-10, a drop of around 28 per cent.

Credit growth, especially to infrastructure sector, including petrochemical, iron and steel, cement, power, roads sand others, is not good. “Private consumption has started slowing down”.

Commenting about country's GDP growth, he said from the World's perspective India's GDP growth of 8-.8.5 per cent is a good number, but ideally we must growth by 9.5-10 per cent, looking at domestic challenges.

For which, supply side needs to be addressed, agriculture productivity need to be increased, money should be available for private sectors to increase investments into core sector, Government's diversification programme is not happening as per schedule and it has to be put on the fast track, land acquisitions stagnating the industry and reforms need to be speed up.

On the reforms for example GST implementation has to be on the speed track. Muthuraman said, GST alone can increase country's GDP by 1-1.5 per cent.