'Tame inflation without interest rate hikes'

New Delhi, Jul 24: Industry chamber Assocham today advised the RBI Governor Y V Reddy to tame the inflation rate without hiking interest rates by adopting cautious measures in its Quarterly Monetary Review Policy (QMRP) to be unveiled tomorrow.

It also called on the RBI chief to ensure plus 8 per cent GDP growth rate in the current fiscal.

In a representation submitted to Mr Reddy, Assocham President Anil K Agarwal urged the RBI to ask banks to evolve special financial schemes to provide affordable and timely credit to sectors like manufacturing, agriculture and agri-business, village electricity scheme, SMEs and tiny industries, micro and self-help groups, rural housing and infrastructure development.

He, however, admitted that it would be a difficult task for Mr Reddy to maintain a balance between the rising interest costs and high cost of money, at the same time make sure that the growth of the economy is not adversely impacted.

This could be done provided a measured approach is adopted in the review policy so that the inflation is contained without substantially rising the interest rates, Mr Agarwal suggested.

There should be a supportive environment to encourage new investments in the core sector, particularly in neglected areas of infrastructure development.

Resource flow including long term funding to productive and green field projects should also be enhanced, he added.

While high commodity prices, particularly crude oil has created supply side inflationary pressures, a judicious mix of fiscal and monetary measures, has also been able to contain inflationary expectations to a large extent.

However, these measures should be further enhanced, as with demand remaining strong in the domestic economy, return of pricing powers with manufacturers could result in high inflation going forward.

The chamber called for transparency in pricing the Bank Credit for customers' benefit. Thus, RBI must suggest uniform methodology for all banks, it said.

Assocham advised RBI to ask the banks to reduce transaction cost as it is very high in India as compared to other countries.

The banking system should also be encouraged to increase flow of commercial credit, particularly to retail trade, distribution/ marketing, housing, agro-based industries/food processing units, small and medium-sized enterprises (SMEs), besides priority sectors for rural area, as envisaged in the recent budget, Mr Agarwal said.

As SMEs contribution to the GDP is high, banks should reduce their Prime Lending Rates to ensure a level playing field for all borrowers.

UNI