India Inc on Friday questioned the RBIs 12th rate hike since March 2010 saying its unlikely to tame rising inflation and could instead lead to a further slowdown in investments and industrial growth. Even as the RBI justifies this rate hike of dampening inflationary expectations,it is difficult to fathom how this will be achieved,when a cumulative rate hike of 325 basis points since March 2010 could not achieve this objective. It is ironic that the RBI is now clearly banking for inflation rates to start declining towards the latter part of the current fiscal,based purely on the base effect, said Rajiv Kumar,secretary general,FICCI. Currently,all domestic indicators points towards a slowdown. The sequential growth in consumption is currently at 9 quarter low. Further,sequential growth in gross fixed capital formation is at the second lowest in the last 6 quarters. This rate hike will only exacerbate the current fears of an impending slowdown, Kumar said. Confederation of Indian Industry said its concerned that with inflation and interest rates continuing to rise,the growth outlook for the country is deteriorating rapidly. At a time when economic policy should focus on the creation of jobs,it is unfortunate that the economy is being forced into a sluggish growth phase, said B Muthuraman,president,CII. Going by earlier experiences of a policy induced slowdown,it may be difficult to emerge from such a phase. In that case,GDP growth of 8 per cent may not be achievable not only in the current year but also in the forthcoming year. This makes the Planning Commissions target of achieving an average of 9 per cent growth during the 12th Five Year Plan look increasingly difficult,he said. According to the CII,urgent action needs to be taken up by the government to encourage implementation of projects and ease supply side bottlenecks. Assocham expressed a similar view that successive rate hikes by the central bank have not been able to control rising inflation. Global economic uncertainties and the high interest rate environment are likely to put brakes on new investments and put Corporate India in a difficult position to maintain growth momentum,Assocham secretary general DS Rawat said. Indian Merchants Association president Bhavna Doshi said IMC is concerned about the overall impact of the interest rate hike announced on Friday.
