The Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (Ficci) termed slowdown in industrial growth in the last quarter of 2010-11 as a matter of concern, effected by RBI’s tightening of monetary policy.
Economists believe demand side has been picking up, while supply side has not been growing proportionately, leading to demand-supply mismatch.
Economists also expect RBI to go for another 50-75-basis-point increase in policy rates before pausing the tightening of the monetary stance.
“While GDP clocked a growth rate of 8.5 per cent for 2010-11, the disaggregated figures reveal that the growth of industrial sector has slowed down across the board. The persistent tightening of monetary policy is surely leaving an imprint on the performance of industry,” Ficci Secretary-General Rajiv Kumar said.
CII President B Muthuraman highlighted the need to remove some of the bottlenecks that had stalled industrial growth in the fourth quarter.
He recalled his earlier suggestion that 100 mega projects of national significance be identified and fast-tracked to overcome the sluggishness in the investment environment.
HDFC Chief Economist Abheek Barua said notwithstanding the softer-than-expected GDP growth in the fourth quarter of last financial year, a number of demand components remained robust and much of the weakness in the headline print had so far come from lacklustre investment growth.
He said: “Going forward, there are discernable headwinds to domestic growth momentum — rising interest rates, accelerating input prices and signs of some moderation in the global growth cycle — the full impact of which have yet to be felt, especially on the cyclical bounce in leveraged domestic consumption.”
These factors were likely to constrain demand growth going ahead, even as structural offsets from low product penetration and rising rural consumption prevented it from collapsing altogether, Barua added.
With regard to RBI’s tight monetary policy, blamed for low industrial growth, Kotak Mahindra Bank chief economist Indranil Pan said: “I don’t expect RBI to pause its hardening of interest rate stance before another 60-75-basis-point increase in policy rates.”
Financial services company Kassa and director Siddharth Shankar said: “More than interest rates, it is the optimism that is falling.”
For the current financial year, YES Bank Chief Economist Shubhada Rao pegged economic growth at 7.9 per cent. The government has already said it would revise downwards its economic growth forecast of nine per cent, as projected by Economic Survey, for this financial year.
Art Woo, a director at Fitch’s Asian Sovereign Ratings group, said the Indian economy had clearly hit a soft patch since late 2010.