HOME > BUSINESS > Industry criticises interest rate hike, says implement reforms first

Industry criticises interest rate hike, says implement reforms first

India’s biggest industry body, the Confederation of Indian Industries (CII) has criticized the raising of interest rate by the Reserve Bank today, pointing out that the relentless inflation is caused by factors external to India.

The Reserve Bank, in charge of controlling price rise by managing the amount of money pumped into the market, raised the rate at which it lends to banks by half a percentage point in its Annual Policy Statement today.

“The continued monetary tightening without any movement on structural reforms to address supply side bottlenecks will have an added impact on capacity creation and expansion,” Banerjee said.

Indians, particularly the middle and low income groups, have been suffering under relentless inflation as prices of assets and commodities have risen by unprecedented levels over the last two years.

While the price rise is set off by increasing profits in case of businessmen, for salaried employees, the fall in value of the Rupee viz a viz other commodities and the resulting price increase has been hard to bear. The normally cautious Reserve Bank has held back from increasing interest rates (and bringing down the amount of currency in circulation) on concerns over corporate growth.

Companies, recovering from the global recession, have repeatedly asked for low interest rates and easy availability of cash to help them grow and expand, but the RBI seems to have finally decided to tighten a notch. Wholesale prices are increasing at the rate of 9-10% a year for several months — higher than the rate at which many salaried employees can expect to see their incomes rise.

The CII pointed out that inflation is not just the result of total availability of cash, but also structural issues in the Indian economy — such as the presence of too many layers of middlemen or traders in commodity markets.

The printing of dollars by the US Federal Reserve, in an attempt to cushion the problems faced by US companies, has also contributed to inflation in countries like India thanks to global commodities such as oil. Oil, which supplies around 32% of India’s energy, is imported by India by paying in US dollars and the declining value of the dollar has increased the price of oil for India.

“While inflationary pressures are primarily driven by global factors and domestic fiscal situation is also tight, this presents an opportune time for the Government to move forward on structural reforms in agriculture, land and Foreign Investment.

“The Government could identify 100 mega projects and put them on fast track to improve the investment momentum in the economy which would help improve sentiments as well,” CII said.

Follow ULTRA.news