Cut Interest Rates to strengthen economic fundamentals

23 Jan '08

2 min read

Following the US Federal Reserve rate cut by 75 basis points, Mr Sunil Bharti Mittal, President, CII has strongly suggested an urgent need to cut interest rates to strengthen the macro economic fundamentals of India Economy in an increasingly uncertain global economic environment due to slowdown in the US economy.

With inflation under control and hovering around 3 per cent, it is the right time for RBI to cut repo and reverse repo rates that are currently at 7.75 per cent and 6 per cent respectively by 25 to 50 basis points to cover the relative competitive disadvantage India is currently in on macro economic fundamentals.

This move would strengthen the economic fundamentals and also boost investors' confidence, said the CII President, in a Press Release issued.

CII has further noted that the decline in IIP in the recent months could trigger a slowdown in the Indian manufacturing sector, especially in the consumer durables sector, which has witnessed a negative growth at -1.7 per cent during the period April-November 2007 when compared to the corresponding period last year, said the release.

In its recommendations for the quarterly review of Monetary Policy 2007-08, the CII President expressed concern over high interest rates affecting investments and growth and suggested that the time is right to recognize the need to reduce interest rates, which is pivotal to sustain 9 per cent plus GDP growth.

Furthermore, India would need investment rates in excess of 36 percent of GDP to achieve 9-10 per cent GDP growth in the medium term, which is again important to raise per capita income, reduce income inequalities and alleviate poverty, said Mr Mittal, in the release.

Mr Sunil Mittal strongly feels that reducing interest rate would go a long way in boosting demand and investments. It would also reduce the operating costs of exporting SMEs who have been facing decline in profit margins due to an appreciating rupee.

The impact of high interest rates have been severe on SMEs, especially exporters, who have been the worst hit due to the appreciating rupee which has eroded their profit margins significantly.

Confederation of Indian Industry

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