India Inc fear RBI's steps on Monetary Policy

New Delhi, Apr 22: With the RBI set to announce the Annual Monetary Policy on Tuesday, India Inc today voiced fear saying it felt indications that the central bank would take further measures to tighten the monetary flow as the credit growth continues to remain much above 20 per cent level as desired.

Corporates from real estate, housing finance and automobiles believe that the RBI would tighten the flow of credit in the real estate as this sector has witnessed maximum increase in the prices, a business survey conducted among CEOs and CMDs of companies by industry body Assocham revealed.

It said construction, automobiles and banks are other sectors affected by the interest rate hikes. The car manufacturers and dealers are witnessing a decline in their sales.

The cost of deposits flow is rising and the pressure on margins is building up, it added.

About 60 per cent of corporate heads, bankers and economists across different sectors are not sure whether the interest rates have peaked and RBI would not be tempted to further tighten the money supply in the system, according to the Assocham Business Survey (ABB).

However, about 40 per cent respondents felt that the interest rates are somewhat near the peak.

The CEOs opined that tight monetary policy would affect the small and medium enterprises in the economy more than the large business houses.

The CMDs and CEOs predicted the average inflation to remain within the range of 5-5.5 per cent due to the huge capital flows into the country, which in turn get translated into additional money supply.

''RBI faces a unique problem. While on one hand, it tries to suck liquidity through holding the CRR and repo rate, at the same time it is faced with fresh inflows negating the tough measures,'' Assocham President Venugopal Dhoot said.

The hike in interest rates as a result of tightening measures has hurt not only exports but also giving the cost-push to manufacturing, which in turn would lead to inflation. This is how we face the threat of being pushed into a vicious circle, he added.

About 92 per cent of the business leaders surveyed were convinced that the RBI policies would hurt the GDP growth rate in the economy in fiscal 2008.

Commenting on the Annual Policy's impact on economic growth, about 60 per cent anticipate the Annual Policy would peg the economic growth rate between 8.5-8.7 per cent this fiscal.

While, the rest of them were of the view that the projection would be between 8-8.5 per cent.

UNI