IIP figures rate signal for policy-makers: Kamath

Concerned over the slowdown in the country's industrial production in July, ICICI Bank today said it was a cautionary signal for policy-makers to lower interest rates to ensure that high growth is not hampered.

"The slowdown in IIP (index of industrial production) is an amber signal...The policy-makers will have to take a call on interest rates as a slowdown in growth rate will make it difficult to regain momentum," K V Kamath, MD & CEO, ICICI Bank, told PTI.

Kamath, who heads the country's second-biggest bank, said RBI undoubtedly faces a major challenge in containing inflation, which is its priority, but it could not be at the cost of a slippage in economic growth.

His comments came days after government estimates showed growth in industrial output fell to 7.1% in July this year as against 13.2% in the same month a year ago. Industry contributes one-sixth of the GDP and a decline in this sector indicates the country may not be able to sustain over 9% economic growth this fiscal. Already, a number of economists and a section of policy-makers believe the first quarter GDP growth of 9.3% cannot continue and the full year expansion will be around 8.5-9%.

Observing that interest rates have risen by a third in the last one year, Kamath said it has started impacting industry, particularly the manufacturing sector.

One cannot go merely by the high-growth figure as 60% of it was emanating from the services sector, especially the knowledge-based sector, he said.

"As of now, there is no credit squeeze, but if interest rates stay where they are, then they will begin impacting industry," he said, adding in the auto segment, affordability of customers has come under pressure. (K R Sudhaman & J Jaishankara)