Further rate hike will affect growth rate: Assocham

Cautioning the Reserve Bank of India (RBI) against monetary tightening in its quarterly monetary policy review later this month, business chamber Assocham today said any such step would "seriously" impact the economic growth, especially with industrial expansion plunging to 2.7 per cent in November.

"Any meddling with the key policy rates at this critical juncture will seriously derail the growth curve," the chamber said.

The RBI is widely expected to raise short-term lending and borrowing rates -- repo and reverse repo -- in its policy review on January 25 to tame inflation, particularly food inflation.

Expensive food items pushed overall inflation to 8.43 per cent in December 2010.

RBI raised short-term rates six times last year to check inflation before pressing a pause button in December 2010. It said that the increasing rates have affected the demand and growth.

Assocham said that the central bank should reduce CRR and SLR by 50 basis points to improve liquidity with banks.

At present, CRR stands at 6 per cent, while SLR stands at 24 per cent.

"The GDP of 9 per cent needs large amount of liquidity and lower cost of funds to create larger and improved supply chain infrastructure, capacity building," it said.

"...There is a strong and valid case for the RBI to keep off any monetary tightening agenda," it added.

Meanwhile, the chamber asked the government to float tenders to transport vegetables from farms to consumer centres, breaking cartelisation of traders to contain vegetable prices in the national capital.

It said that farmers should also be encouraged to directly sell to NCR mandis.

It said that trading pattern that brings supplies from farms to consumer centres is fragmented with too many intermediators.

It said that vegetables and fruits are perishable and require intelligent supply chains with sizeable investment in cold chains and transportation.