ComMin to FM: Further rate hike by RBI to impact ind growth

New Delhi, Jan 18 (PTI) Concerned over deceleratingfactory output, the Industry Ministry today said the ReserveBank should not raise key interest rates in its monetarypolicy review later this month as it could hurt growth.

Making a strong case for availability of easy finance tothe industrial sector, Industry Minister Anand Sharma has saidin a letter to Finance Minister Pranab Mukherjee thatindustrial growth has already plunged to an 18-month low of2.7 per cent in November 2010.

"The high inflation in primary articles, particularly,vegetables is more on account of supply side constraints andmonetary policy may not be the most suitable intervention todeal with the situation," Sharma said.

While he appreciated concerns on inflation, the ministersaid, "Industrial sector clearly needs sustained support toenable complete recovery".

The Reserve Bank of India (RBI) is scheduled to announceits quarterly policy review on January 25. There is stronganticipation that at its third quarter monetary policy review,RBI will raise the key rates by at least by 25 basis points torein in soaring inflation.

High food inflation has been a major concern for thegovernment. Rising food prices have pushed up the overallinflation to 8.43 per cent in December.

Food inflation stood at a high level of 16.91 per cent onJanuary 1, after touching the year-high level of 18.32 percent in the last week of December 2010.

"A selective restriction on credit may be necessary tocheck inflationary pressures, but the imperative of easycredit flow for industrial sector, especially theinfrastructure and manufacturing is crucial for the economy,"Sharma said.

He added that the capacity addition has not been at anappropriate level to ensure the sustained targeted growth inGross Domestic Product (GDP).

The economy grew by 8.9 per cent in the first half (April-September) of the current fiscal. The government is expectinga economic growth of 8.75 per cent in the current fiscal.

"... capacity addition has been much below the 11th Plantargets in power, roads and other infrastructure sectors,"Sharma said.

RBI raised short-term policy rates six times last year tocheck inflation.