Start cutting bank interest rates, Assocham tells Reserve Bank of India

BANGALORE: Citing stubbornly high inflation, the rising cost of funds and crisis-hit global markets as the main factors responsible for a GDP growth slowdown in the second quarter, Assocham today said the RBI should start cutting interest rates so the cost of credit comes down.

The escalating debt crisis in Europe and the shaky economic recovery in the United States are likely to hit the services sector in India, which contributes over 60 per cent of the GDP, the industry body said in a statement.

The slowdown in the manufacturing sector -- a major contributor to industrial production -- is also expected to hit services in the third quarter, the Associated Chambers of Commerce and Industry of India (Assocham) said.

"The RBI should start cutting bank interest rates so that the cost of credit comes down. Due to near double-digit inflation, the cost of raw materials has shot up, resulting in a slowdown in factories output," said Assocham Secretary General D S Rawat.

Unless there is a recovery in the euro zone and the United States, the Indian economy will continue to be impacted, Assocham said.

"The government should fast-track the National Manufacturing Policy and take measures to attract massive investments so that GDP growth does not fall below 7.5 per cent in the current fiscal year," he said.

Earlier in the day, it was announced that India's economic growth rate slipped to 6.9 per cent in the second quarter this fiscal, the lowest in nine quarters, prompting the government to lower its full-year growth projection to 7.3 per cent.

"Taking into account the trend of the last two quarters, I expect the GDP growth to be 7.3 per cent (in 2011-12)," Finance Minister Pranab Mukherjee told reporters.