India Inc for review of RBI's rate tightening policy

Leading India Inc representatives today made a strong plea to the Reserve Bank of India (RBI) to review its rate tightening policy, saying the high cost of credit is having an adverse impact on growth.

Quoting a recent study, industry body FICCI's vice-president and HSBC's country head, Naina Lal Kidwai, said a majority of firms feel inflation and successive rate hikes in the key monetary variables "have started having a bearing on industry’s performance."

"India Inc is worried about the significant impact of the increasing inflation and interest rates on their operations... further rate hikes by RBI could impact investment plans and activity levels adversely going forward," she said during the customary pre-policy meet with RBI top brass ahead of the annual monetary policy announcement due on May 3.

To tame the headline inflation number which stood at a higher-than-comfortable 8.31% in February this year, RBI has hiked its key rates -- the repo at which it lends and reverse repo at which it absorbs extra cash -- a record eight times in the last 13-months.

As the rate hikes get transmitted and result in higher cost of credit, industry gets worried and has voiced fears of the growth momentum getting stifled.

RBI governor D Subbarao had earlier said the central bank is "struggling" in managing the growth-inflation dynamic.

However, in its statement during the mid-quarter review of the monetary policy last month, the RBI has stated that further stance of the policy will be directed towards getting the inflation number to comfort levels.

The president of another industry body ASSOCHAM, Dilip Modi, said the RBI should "review the need to resort to tight monetary policies during the current fiscal" in order to increase the credit flow to the corporate sector so that the industry performance improves.

The apex bank should also take steps to deepen the corporate debt market in the monetary policy document, he said.

Leading realtor Niranjan Hiranandani, who was also a part of the delegation, said that rate hikes hamper home-buyers, especially first-time ones.

"In India, a house is not an investment but a social security since we don't have any formal social security framework. Therefore, first-time home-buyers should be encouraged to have their own homes easily," he said.

Among others who attended today's meet were L&T's YM Deosthalee, Tata Steel's B Muthuraman, Crisil's managing director Roopa Kudva and M&M's Bharat Doshi.