High cost of credit crippling growth: FIEO Chief

Mumbai, Mar 27 (UNI) Federation of Indian Export Organisations (FIEO) President Ganesh Kumar Gupta, while reacting to the aggressive Fed Rate cut of 75 basis points to 2.25 per cent here today, said the interest rate differential will result in further capital flows exerting upward pressure on the rupee and fanning inflation.

The FIEO Chief elaborated that the high cost of credit was already making an impact on the credit offtake and sectoral indices.

In the first eleven months of the current financial year 2007-2008, credit offtake of commercial banks has increased by only 16.7 per cent (Rs 3,22,932 crore) as against 22.6 per cent (Rs 3,39,932 crore) in the same period last year.

The figure so far is substantially short of RBI's projections of 24 per cent credit growth in the current fiscal.

As far as the sectoral growth is concerned, growth rate of industrial products in January 2008 slumped to 5.3 per cent from 11.6 per cent in the previous year, manufacturing declined to 5.9 per cent from 12.3 per cent in January last and capital goods, machinery and consumer durables have slumped from 16.3 per cent, 10.1 per cent and 5.3 per cent to 2.1 per cent, 3.8 per cent and 3.1 per cent respectively.

Inflation itself has shown no signs of relenting with food prices and oil prices on an all time high and is much beyond 5 per cent.

Mr Gupta added in such a scenario, the Reserve Bank of India may consider an immediate reduction in the cost of credit to ensure that the various sectors of the economy are brought back on the growth track.

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