New Delhi, Jul 29 (UNI) Industry today saw a doomsday scenario ahead for the economy, saying that RBI Governor Y V Reddy had affected larger-than-expected tightening of money supply to quell double digit inflation.
Captains of the industry lamanted that the measures taken by Reserve Bank of India (RBI) were too harsh to bring down prices, which would send growth rate Southwards and interest rate Northwards.
The Reserve Bank of India in its review of the Annual Credit Policy raised its benchmark lending rate, that is repo rate, by 50 basis points and hiked the CRR by 25 basis points from August 30.
The present repo rate of nine per cent is the highest in seven years.
It pegged the inflation rate at 7 per cent by March 2009, while admitting that headline inflation will remain more or less at the current levels in the next two months.
The industry saw the political compulsions of the government in an election year where it would be fully geared to controlling prices, sacrificing growth at its altar.
It took note of the fact that manufacturing sector growth had come down from 11.3 per cent in May 2007 to 3.9 per cent in May 2008. It said using these harsh monetary tools would have a further negative impact on the downward movement of industrial activity.
The apex chambers, namely FICCI, ASSOCHAM and CII, in one voice also said the financial structure could also go through further stress.
With the higher CRR, there will be further squeeze on credit availability and projects that are already slated may get shelved.
While some investments may no longer be viable in the high interest rate scenario, some others might be taken off by the Board rooms due to non-availability of adequate funding.
Industry leaders also saw stock markets in a turmoil. The proof of the pudding lies in its eating. The BSE Sensex plummeted today by a whopping 557.57 points.
FICCI said in a situation where real rates of deposits are anyway negative, for small investors the mutual funds had become an investment avenue.
With stock markets reacting negatively to the monetary policy measures, this investment opportunity of small savers and senior citizen will also get negatively impacted.
UNI MP GS SK KP2036