PMEAC concerned over investment slowdown

* Capital formation low despite good credit off-take.

Amidst concerns of a possible slowdown in the economy,the Prime Ministers Economic Advisory Council (PMEAC) on Thursday met with top bankers and industry chambers to gauge investor confidence and outlook on growth. The meeting was a part of an exercise towards drafting the Economic Outlook report that the PMEAC is expected to present next month.

According to sources,the PMEAC wanted to know why investment had slowed down even though credit offtake has not really slumped. PMEAC was concerned over the decline in gross fixed capital formation and negative growth in capital goods sector, a source said.

At the meeting held in New Delhi on Thursday,top industrialists and investors raised concerns over the prevailing high interest rate scenario and how it may prove to be a dampener to future investments by the industry. Industry chambers also said that the governments policies should be more focused on expediting project clearances that are stuck at various levels.

The other issues that came up for discussion,include land acquisition laws,slow growth in textile exports,infrastructure bottlenecks,fuel-linkage problems and other impediments threatening the industrial growth. Inflation was also discussed at length. The regulatory and policy approach of the government also came into focus as industry felt that things were not taking off under some of the current regulations and rules.

Talking about inflation,PMEAC chairman C Rangarajan was hopeful that headline inflation would decline to 6.5 per cent by March 2012 and that a favourable monsoon would lead to a decline in prices from the current level of 8.66 per cent (April).

He also said that increasing the price of petroleum products is in line with international rates was necessary to restrict the fiscal deficit to 4.6 per cent in the current fiscal and that the move was necessary because we import nearly 80 per cent of our requirement with respect to crude oil.