Industry wants rate cut as inflation dips 3-year low

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SME Times News Bureau | 16 Apr, 2013
With headline inflation falling below six percent for the first time in more than three years on the back of slower rise in the prices of manufactured and primary articles, the Indian industry has reiterated the demand for rate cut by the RBI to ease pressure of high interest rates.

Federation of Indian Chambers of Commerce and Industry (FICCI) president Naina Lal Kidwai said: "Going ahead we expect this trend (decline in inflation) to continue and this should give more space to RBI for considering a cut in the policy rates. Particularly noteworthy is the fact that non-food manufacturing inflation continues to remain under restrain."

President of the Associated Chambers of Commerce and Industry (Assocham) Rajkumar Dhoot said the RBI must cut rates to propel growth.

"While inflation control is one of the main responsibilities of the central bank, ensuring that growth does not fall to a dismal level is also its key task," Dhoot said.

Inflation based on Wholesale Price Index (WPI) fell to 5.96 percent in March, the lowest level since November 2009.

The headline inflation was recorded at 6.84 percent in the previous month and 7.69 percent during the corresponding month of last year, according to data released by the ministry of commerce and industry.

Reacting on the monthly data, Planning Commission Deputy Chairman Montek Singh Ahluwalia said inflation was slowly coming under control.

"Inflation behaviour is consistent with what the government has been saying that it is slowly coming under control," Ahluwalia told reporters.

"The softening of headline WPI inflation to a three-year low can mainly be attributed to cooling down of primary articles (particularly food) inflation," said Bhupali Gursale, an economist at Angel Broking.

"Owing to the positive trend in inflation, we believe there is scope for a 25 basis points rate cut in the RBI's annual policy May 3," Gursale added.

The Confederation of Indian Industry (CII) today pressed for a 100 basis point cut in interest rate by the RBI saying that it will push economic growth in the country.

"We would like to see a 100 basis point decrease in interest rates. Investments will automatically increase if the interest rates come down," said CII president and Infosys co-founder, Kris S Gopalakrishnan.

He added that to revive the economy and take the rate of growth in GDP back to 8-9 per cent in the next two years it is essential to kick start investment. "Early implementation of Goods and Services Tax and Direct Taxes Code is also important. Steps like early implementation of GST would help in adding 1-1.5 per cent in the GDP," he said.

The RBI will unveil its annual monetary policy on May 3.