Trade Associations' Disappointment on No Interest Rate Reduction

Recently RBI released its Third Quarter Review of Annual Statement on Monetary Policy for 2007-08. In the review, RBI was expected to cut rates in view of the slowing industrial growth. But the reluctance to do so has disappointed trade associations in India.

FICCI President, Mr. Habil Khorakiwala, expressed his views in this context of the slowdown in industrial growth. He mentioned that RBI could have revised and fine-tuned the interest rates, to sustain a high rate of economic growth. The RBI could have shifted its emphasis from controlling inflation to sustaining the overall growth momentum.

Similar reactions were received from ASSOCHAM President, Mr. Venugopal N. Dhoot. He said the reluctance in the interest rates cut would make it difficult for the various industry segments to cope with the slackening demand, rising imports and high borrowing cost. The economy is not prepared for copious capital inflows which would arise with increasing FIIs and ECBs taking advantage of interest rate differences between India and developed economies of US and Europe.

Industrial growth in November this year was at 5.3% compared to 15.3% in the previous year. Along with the rising rupee, high interest rates have taken a big toll on the small and medium enterprises - which in absence of funding from equity markets and competition from cheaper imports, is bearing the maximum brunt of the slowdown in demand and expensive domestic funds.