To maintain growth ease monetary measures: CII

Chandigarh, July 30: The declining non-food credit off take, appreciating rupee and high interest rates is expected to impact investment rates which would reduce the pace of economic growth in India, CII study has observed.

This would also impact exports due to erosion of profit margins of exporters due to the appreciating rupee as well as high interest rates.

CII has suggested that in the wake of inflation moderating, monetary tightening measures introduced earlier by RBI to contain inflation could be eased due to lower levels of inflation registered in the past weeks.

CII observed that the non-food credit off take during the period March 31 this year and and May 25 reduced significantly. The non-food credit outstanding during this period declined by more than two per cent to Rs 18,41,656 crore (May 25) from Rs 18,82,392 crores as on March 30.

The total bank credit also registered a similar trend. Such a trend is a major cause for concern on economic expansion and hence would have a downward impact on economic growth, CII observed.

The decline in non-food credit off take has been due to monetary tightening measures introduced in the recent past by RBI to contain inflation at 4 - 4.5 per cent, as high inflation would not be conducive for maintaining self accelerating growth over the medium term.

Refering to the upward trend of interest rates, CII pointed out that the prime lending rates had gone up from 12 per cent in first week of February to 13.5 per cent in the first week of April. Any further upward movement in interest rates would slow down the investment rate in the productive sectors of the economy, CII felt. While the 6 per cent plus rate of inflation during the period January to April warranted for monetary tightening measures to contain inflation, the current levels of inflation at 4.37 per cent is well within the acceptable limits set by RBI and hence there should be no further monetary tightening measures, CII opined.

As economic growth in India is still investment led, continuing with monetary tightening measures is expected to impact investment rate and thus bring down the growth momentum. RBI must consider easing the interest rates such that industry is encouraged to carry on with their expansion plans.

Moreover, the appreciating rupee and high interest rates have eroded the profit margins of the exporting units especially those engaged in textiles and apparels, leather and leather products and marine food processing. While the Government has revised the DEPB rates and the duty drawback scheme in favor of exporters, bringing down the interest rates will go a long way in helping these exporting units manage during these difficult times.

UNI