High rates hurting growth: Basu

Concerned over the impact of high interest rate on consumer demand, Chief Economic Advisor (CEA) Kaushik Basu today said Reserve Bank of India (RBI) will need to have a re-look at the monetary tightening policy.

"The RBI will have to balance its monetary policy tightening in view of growing concerns particularly in consumer goods front, where higher interest rates are impacting demand," Basu told reporters here.

The comments comes as the RBI is scheduled to hold a mid-quarter review of the monetary policy on Wednesday. The central bank, in its bid to tame high inflation, has raised its key policy rates nine times since March 2010.

It is widely expected that the bank may again hike the rates on June 16.

As per the latest Index of Industrial Production (IIP) data, output in the consumer goods sector slowed to 2.9% in April from 13.8% in the year-ago period.

Meanwhile, the growth in factory output numbers for the fiscal 2010-11 has been revised upward to 8.2% in the new series (with base as 2004-05) from 7.8% growth projected in the series with 1993-94 as base year.

Basu said there will be a marginal upward revision in 2010-11 GDP figures following change in IIP growth.

"There will be a small upward revision in FY11 growth figure due to change in IIP growth. We are in the midst of re-calculation of our growth prospects. We will be able to come out with clear assessment by the end of the month," Basu said.

According to the Central Statistics Office (CSO), the GDP in last fiscal is esimated at 8.5% year-on-year.

On the diesel price hike, he said the government should soon take a decision in this regard.

"We [the government] are committed to our fiscal consolidation target. We don't want to divert from it. We will very soon have to take stock of diesel prices," Basu said.

Oil Minister S Jaipal Reddy today met Finance Minister Pranab Mukherjee this afternoon to apprise him of the precarious financial state of the state-owned oil firms, who are living off borrowed money in the absence of the government raising prices of diesel, domestic LPG and kerosene.

An Empowered Group of Ministers headed by Mukherjee, which decides on revising rates of the sensitive products, has not met since June last year even though crude oil prices have spiralled by about 50%.