India Inc asks RBI not to hike interest rates

With the industrial production recording a meagre growth of 3.7% in January, the India Inc today asked the Reserve Bank of India (RBI) not to hike the key policy rates as it would hurt the economic recovery.

Industry chamber Ficci suggested that RBI should avoid increasing the key rates during the mid quarter policy on March 17, as it would affect the industrial output.

"RBI will hopefully consider the impact of a further rise in interest rate on critical and interest sensitive sectors," Ficci Director General Rajiv Kumar said.

The industrial growth rate in January declined to 3.7% from over 16.8% in the same month a year ago.

"Manufacturing capacity expansion may not be feasible in the light of rising cost of borrowing and increased competition within domestic market from imports," Kumar said.

The RBI has hiked policy rates seven times since March 2010 to tame inflationary pressure. It is expected that central bank may come up with another round of rate hike in its next review of policy as the headline inflation is over 8%, much above the comfort level of 5-6%.

CII Director General Chandrajit Banerjee too said that continued decline in capital goods was a matter of concern as "this indicates some slowdown in investment demand as well as capacity constraints in the production of capital goods".

However, he added that the recovery in consumer non-durables sector was a welcome sign.

The capital goods sector contracted by 18.6% in January as compared to a robust growth of 57.9% in the corresponding month last year.

The production of consumer non-durables items recorded a growth of 6.9% in January. It had contracted by 7% in the same period a year ago.

Assocham President Dilip Modi said the policy makers should remain cautious till the inflationary conditions are reversed in India and normalcy is restored in the developed economies.