Volatility in operating rates, cost of funds may impact growth: FIEO

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SME Times News Bureau | 15 Nov, 2013
Untamed Inflation, uncertainty in operating rates/ cost of funds may impact investments and growth, said M Rafeeque Ahmed, President, Federation of Indian Export Organisations (FIEO)

"In spite of RBI's efforts inflation continues untamed and is bound to impact policy rates in the next review slated for December 2013," said Ahmed while commenting on WPI inflation data released Thursday, which has increased to 7 percent in October from 6.46 percent in September with food inflation having almost tripled since last October to over 18 percent and manufactured products also seeing higher inflation on a yearly basis to 3.25 percent from 2.89 percent.

FIEO chief stated that although export has shown 13.5 percent year-on-year, growth in October to make it sustainable moderation in interest rates would be a key factor. Manufacturing would also require some fillip which has shown a dismal 0.6 percent growth (constitutes 75 percent of IIP and has bogged down IIP due to dismal performance). Manufacturing barely grew at 1 percent in 2012-13, following a poor 2.7 percent increase in 2011-12.

Ahmed elaborated that sectorally, the output of consumer durable goods has been declining all this year; these contracted a steep 10.8 percent in September.

Consumer non-durables, on the other hand, grew 11.3 percent, against 1.4 percent. As a net effect, the consumer goods rose by a low 0.6 percent in the month, compared with stagnation in the same period last year and shows that people are restraining themselves from spending on non-food items due to high inflation.

Garments output jumped 29.2 percent in September and contributed 0.81 percent to the overall industrial index, mainly due to a rise in demand. Capital goods continued to contract 6.8 percent in this month, against a 13.3 percent decline in output a year ago indicative of low investment demand, added Ahmed.

President FIEO said that given the scenario of increasing rates with ambiguity in "cost of funds or operating rates” needs to be resolved with a repo rate and MSF in place besides two more liquidity windows - the seven and 14-day repo windows which would make cost of funds a function of liquidity in system which may hurt investment so necessary to kick start growth.