Interest rate should not be raised: India Inc

At the mid-term review of the Annual Monetary Policy, which is likely to be announced on 31 October by the Reserve Bank of India, the interest rate should not be raised.

At the mid-term review of the Annual Monetary Policy, which is likely to be announced on 31 October by the Reserve Bank of India, the interest rate should not be raised. This was the verdict of 69 per cent of the chief executives who responded to a CII poll on select economic issues. The captains of Indian Industry felt that though the demand for credit was growing at a healthy 30 per cent and above, the current interest rate needed to be maintained to keep the growth momentum on track.

This was obviously backed by modest inflationary expectations among the industrial community. The respondents were confident that inflation would be contained below 5 per cent for the current fiscal. While 38 per cent of the respondents in the survey felt the inflation rate would settle between 4.6 per cent and 5 per cent, 23 per cent felt it would end even lower between 4 per cent and 4.5 per cent.

However, the same optimism was not shared for the FRBM Fiscal Responsibility and Budget Management targets. Only 7 per cent of the respondents felt that the FRBM targets fiscal deficit at 3.8 per cent and revenue deficit at 2.1 per cent for the current fiscal would be met. Perceptions regarding this were likely to have been influenced by the fact that during the first quarter of the current fiscal, fiscal and revenue deficits as percentage of total deficits for the whole year stood at 52 per cent and 83 per cent respectively. However, it is understood that much of this can be attributed to front loading of expenditure fund disbursements. Around 67 per cent of the respondents felt that the fiscal deficit for the year would stand at upwards of 4.4 per cent, with 33 per cent feeling that this would be between 4.8 per cent and 5.1 per cent for the year 2006-07.

The manufacturing sector has been clocking an average growth rate of 12 per cent in the April-July 2006 period. The mood has been buoyant in this sector. Reflecting this mood, around 50 per cent of the CEOs felt that the target growth rate for the manufacturing sector should be set at 14 per cent and above. This becomes significant since the Ministry of Finance and the Planning Commission have set a target of 12 per cent growth for the manufacturing sector.