Reddy’s busting economy not inflation, votes India Inc

NEW DELHI: India Inc feels RBI’s move to curtail inflationary pressure in the form of tightened monetary policy is slowing down growth. Almost 86% of 250 CEOs, CFOs and MDs surveyed by Assocham believed that RBI has started overreacting without realising that increasing the cost of money beyond a point would slow down economic growth.
On the issue of inflation, 71% of the respondents felt it was a supply-driven phenomenon and the solution lay in improving agricultural productivity and investing in key manufacturing sectors, such as cement and steel.

In a statement, Assocham president Venugopal Dhoot said, “A hike in CRR and repo rate may not be able to soothe inflationary expectations. An efficient and swift management is the key to overcome supply-side imbalance.”

He added the corporate heads are worried about the impact of rising interest rates on bottom line growth. The industry had not even absorbed the previous increment in CRR by 50 basis points to 6% when another hike came as a surprise on March 30.

Almost 90% of the respondents were upset that RBI didn’t even give time to corporates to hedge their borrowing costs in the short term. The monetary measures aimed at controlling inflation materialise with time lag that could extend to 14 months.

The central bank has already raised CRR twice by 100 basis points and the repo rate four times by 100 basis points in 2006-07. As many as 75% of the respondents believed RBI could have adopted a wait and watch policy or intervened through other measures, such as issuing monetary stabilisation bonds.

Over 74% of the CFOs feared the hike will have a bearing on project viability and investments in the pipeline to the extent of fresh debt. The sectors that are likely to get affected include real estate, construction, automotive and banks. A slowdown in these sectors would mean a major blow to GDP growth and employment.