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Reaching 'Tipping Point' for growth

Apr '07
“Whilst inflation control is legitimately at the top of the agenda of the nation, it is important that growth is not traded off in the bargain”, said Mr. R Seshasayee, President CII, commenting on the recent rate hikes by the RBI.

There are already emerging signals in the form of slowdown in automotive sector, retail banking, etc., which need to be heeded, said the CII President. This could well indicate that at the macro level, we are reaching the 'tipping point' and growth would significantly slow down if further tightening of credit takes place.

It is important to ensure that we do not precipitate a downward spiral from which it would be difficult to climb out even if interest rate is softened later. The obvious effort of the RBI is to control inflation, inflationary expectations and also address the Asset-Liability mix of the Banking sector, as CRR is hiked along with the Repo rate, said the CII Press Release issued here.

It is CII's view that further monetary tightening would squeeze out demand to kick-start a slowdown and therefore, as a country we need to take carefully measured steps at this point, said Mr. Seshasayee.

This growth momentum can only be sustained if adequate margins allow industry to go in for investments in fresh capacity. Currently, there are significant investments in the pipeline and one more round of RBI intervention could force companies to rethink their investments, which would have long lasting impact on industry and also the economy, said Mr. Seshasayee. If at all the RBI has to intervene any further, then it should be very focused approach based on creation or existence of any over heating or asset price bubble in any segment of the economy.

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