India Inc hopes RBI to cut rates after robust IIP data

With industrial production hitting a 4-month high of 3.8 per cent in June, India Inc today said it indicates revival in industrial activity on the back of improved performance of manufacturing, and should motivate the RBI to slash interest rates.

Terming the the outcomes of the recent RBI policy review as "slightly disappointing", Assocham said the central bank should have reduced the rates a bit to provide a fillip to the industrial growth.

"It must be realised that uncompetitive interest rates affect the credit availability and its cost to the corporates, especially the SME sector," Assocham Secretary General D S Rawat said.

Industrial production expanded at a 4-month high rate of 3.8 per cent in June due to improvement in manufacturing activity.

Measured in terms of the Index of Industrial Production (IIP), industrial production had grown 4.3 per cent in June last year, as per the data released by Central Statistics Office (CSO) today.

CII Director General Chandrajit Banerjee said the rise in industrial production, albeit moderate, indicates that the industrial recovery is gathering pace based on the improved performance of the manufacturing sector.

"This should motivate the RBI to resume its rate easing cycle in its next monetary policy especially as the capital goods sector is in the red indicating that new business orders are expanding at a notably slower pace as high interest costs are adversely impacting investment decisions," Banerjee said.

The manufacturing sector which constitutes over 75 per cent of the index, grew at 4.6 per cent in June compared to 2.9 per cent in the same month last year.

During April-June period, the sector grew by 3.6 per cent compared to 3.9 per cent in the year-ago quarter.

"There are some visible signs of growth in manufacturing and we hope that this momentum could be sustained.

"However, the turnaround in investments will take some more time and efforts should be to expedite infrastructure and other projects and provide a more simplified business environment for starting and operating business," Ficci President Jyotsna Suri said.

According to Banerjee, for investment activity to pick up pace, it is necessary that the government initiates investor friendly reforms and takes steps to expedite the execution of approved projects by accelerating the pace of reforms including in the area of land, labour and environment.

Besides, he said, public investment in infrastructure including construction should be augmented to restart the virtuous cycle of growth.

Further, priority should also be given to improving the ease of doing business, introducing bankruptcy laws, facilitate ease of entry and exit so that India becomes an attractive destination for doing business, Banerjee said.

"It is felt that a complete recovery of the industrial production still seems to be a distant dream," Rawat said.