Industry bodies FICCI and Assocham have urged the central bank to cut key policy rates by 50-100 basis points to help prop up the economy that has slowed down considerably in the last 2-3 quarters.
With the country’s quarterly GDP growth numbers showing a declining trend from 7.7 per cent (first quarter),6.9 per cent (second quarter) and 6.1 per cent in third quarter of this fiscal,Federation of Indian Chambers of Commerce and Industry (FICCI) said the need of the hour is for some strong policy actions so as to reverse this ominous trend.
The decline in India’s economic growth rate would have a huge bearing on prospects for employment generation,it added.
“Hence,any further delay in bringing down the key monetary policy rates by RBI could prove to be critical for the country’s growth trajectory”,FICCI said,adding that it would like to see a cut of 50 basis points in CRR (Cash Reserve Ratio) and 50 basis points reduction in repo rate in the next policy review. CRR is the amount of deposits banks need to park with RBI.
The mid-quarter review of the monetary policy is scheduled for March 15 and it is widely expected that a CRR cut could be on the anvil.
It said inflation is largely a supply-side phenomenon and it cannot be dealt with by mere tightening of the monetary policy.
“A cut in both the CRR and the repo rate at this juncture would ease the liquidity pressure in the system and oblige banks to lower their lending rates for both industrial borrowers and consumers. This would set the stage for a much needed recovery and repose confidence amongst corporates both from India and those abroad in the country’s growth story”,the industry body said.
Echoing similar views,another industry body Assocham has asked RBI to urgently cut CRR by at least 100 basis points with a view to release Rs one lakh crore into the banking system for the growth of the economy.
“Major industrial projects have been impacted seriously due to non availability of funds,high lending rates and liquidity tightening policy by the RBI,” the Associated Chambers of Commerce and Industry of India said.
It said that the credit crunch in the system has seriously impacted funding for large projects awaiting disbursements.
“The lending rates continue to rule high,discouraging fresh investment decisions. The only worries that stare in the face of the government are about boosting growth and checking inflation,” it added.