Ease monetary tightening norms to curb inflation: CII
30 Jul '07
3 min read
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 and would also impact exports due to erosion of profit margins of exporters due to the appreciating rupee as well as high interest rates.
CII suggests 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 31 March 2007 and 25 May 2007 reduced significantly. The non-food credit outstanding during this period declined by more than 2% to Rs. 18,41,656 crores as on 25 May 2007 from Rs 18,82,392 crores as on 30 March 2007.
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 said.
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%, as high inflation would not be conducive for maintaining self accelerating growth over the medium term.
As a result interest rates have gone upwards. The prime lending rates have gone up from 12 % in first week of February 2007 to 13.5% in the first week of April 2007 and any further upward movement in interest rates would slow down the investment rate in the productive sectors of the economy, CII felt.
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