India Inc calls for RBI rate cut after GDP, factory output data

The first quarter GDP data on Monday showing the growth rate slipping to 7 percent has provoked calls from India Inc for an interest rate cut by the Reserve Bank of India.

"While the government stands committed to further the reforms agenda, we need to equally create conditions that provide capital at affordable cost to our entrepreneurs. FICCI hopes that RBI will usher in a deeper cut in policy rates in its September review of the monetary policy," said Federation of Indian Chambers of Commerce and Industry president Jyotsna Suri.

Confederation of Indian Industry director general Chandrajit Banerjee said: "On the monetary side, the RBI should ease its monetary policy stance and cut interest rates in its forthcoming monetary policy review."

"Easing of monetary conditions would lead to a lower lending rate framework that would aid both

consumption and investment demand, therefore the RBI in its upcoming bi-monthly monetary policy must give due consideration to reviving the industrial growth in the country," said Associated Chambers of Commerce and Industry of India (ASSOCHAM) president Rana Kapoor.

While the July index growth for core industries slowed to 1.1 percent from an increase of 3 percent in June, a leading international business survey on manufacturing on Tuesday showed a weaker expansion rate for both output and new orders for August 2015.

The Nikkei India Manufacturing PMI (Purchasing Manufacturers Index) for the last month stood at 52.3 which is marginally down from July's 52.7.

According to the PMI report published by the leading global diversified provider of financial information services "Markit", the data showed a weaker improvement in the health of the manufacturing sector.

"Growth of Indian manufacturing production waned in August on the back of softer improvements in both domestic and foreign demand. This led firms to keep payroll numbers unchanged during month," Pollyanna De Lima, economist at Markit.

"As inflation concerns fade and demand growth loses momentum, further accommodative policy should not be discounted," De Lima added.

After cutting its repo rate by 75 basis points this year, the RBI kept the rate on hold at its last policy review, saying it wanted to monitor inflation and wait for lenders to further lower their lending rates.

Earlier in the week, RBI Governor Raghuram Rajan did not rule out cutting interest rates in India for a fourth time, admitting that the world's central problem is continued slowing economic growth.

"We'll look at the data as it comes in and take a further view. We have not said we are finished," he said in an interview with CNBC television in Jackson Hole, Wyoming in the US where he was attending an economic symposium.