FICCI for substantial slash in policy rates by RBI

The Federation of Indian Chambers of Commerce and Industry (FICCI) urged for the need to enable a further cut down of policy rates by the Reserve Bank of India (RBI), to spur demand and help ease the pressure on corporate balance sheets.

"Our reading of the Economic Survey confirms that there is a need to substantially cut down the policy rates by the RBI and ensure its full transmission by the banks in the form of lower lending rates for consumption and investment activities. A cut in interest rates would spur demand, push up capacity utilisation rates and help reduce pressure on the corporate balance sheets thereby enabling them to plan for fresh investments. Unless the private investment cycle revives, sustaining growth and generating jobs in large numbers will be difficult," the chamber noted.

Responding to the Economic Survey 2016-17 Part II which was tabled in Parliament earlier today, the FICCI stated that deflationary impulses in the economy need to be countered through all possible policy levers.

"The survey clearly lays out the opportunities and the risk factors that could have a bearing on the near to medium term growth performance of the Indian economy. While developments such as introduction of the Goods and Services Tax (GST), in principle decision to privatise Air India, steps taken to address the twin balance sheet problem and the continuous roll out of reforms across segments lend confidence, there is an element of anxiety on account of factor such as farm loan waivers, dip in non-cereal food prices and weakening performance of sectors such as power and telecommunications," FICCI stated.

Drafted by Chief Economic Advisor Arvind Subramanian, the survey reflected strong growth in tax revenue, sustenance of the pace of capital spending and a consolidation of non-salary or pension revenue expenditure.

As per the survey, the Union Budget for 2017-18 opted for a gradual fiscal consolidation path: the fiscal deficit is expected to decline to 3.2 percent of GDP in 2017-2018.

The fiscal deficit target of three percent of the GDP under the FRBM framework is projected to be achieved in 2018-19.

The survey mentioned that inflation is expected to remain below the RBI's four percent target through to the end of the fiscal year and described scope for monetary easing as "considerable".

However, it indicated that sluggish growth and increasing indebtedness in some sectors of the economy have impacted the asset quality of banks and this is a cause for concern.