Inflation curbing measures may hit growth rate: CII

New Delhi, Apr 6 (UNI) The government's measures to control the spiralling prices due to run-away inflation are affecting the vital segments of the economy, industry body CII said today.

Commenting on the recent rate hikes by the RBI, the chamber President R Seshasayee said it is important that growth is not traded off in the bargain.

''There are already emerging signals in the form of slowdown in automotive sector, retail banking, which need to be heeded. This could well indicate that at the macro level, we are reaching the 'tipping point' and growth would significantly slow down if further tightening of credit takes place,'' Mr Seshasayee said adding that it is important to ensure that we do not precipitate a downward spiral from which it would be difficult to climb up even if interest rate is softened later.

He said the obvious effort of the RBI is to control inflation, inflationary expectations and also address the asset-liability mix of the banking sector, as CRR is hiked along with the repo rate.

A further monetary tightening would squeeze out demand to kick-start a slowdown and therefore, he added.

He opined the growth momentum can only be sustained if adequate margins allow industry to go in for investments in fresh capacity.

''If at all the RBI has to intervene any further, then it should be very focused approach based on creation or existence of any over heating or asset price bubble in any segment of the economy,'' Mr Seshasayee said.

The other factor that the Central Bank may like to consider is that there is no harm in preparing the markets for its decisions in a manner that the element of surprise is reduced and unintended market reactions can be avoided, he added.

He claimed that the right prescription for containing inflation should focus on dealing with the supply side constraints, which are fuelling price rise and also price expectations.

While the supply side measures take effect, industry might have to accept in the short term, appreciation of the Rupee, even if it means that exports are hurt a bit.

UNI