All eyes are on the government and the Reserve Bank, as industry struggles to rebound from the knock-on effect of a global slowdown. The new leadership at the Confederation of Indian Industry (CII) is banking on an infrastructure push and cheaper interest rates to somehow do the magic, though it admits that the government is fiscally strapped for resources.
RBI should further cut policy rates by 50 basis points, CII’s new president Venu Srinivasan said on Tuesday, as he took the helm with Hari Bhartia as vice-president.
“Real interest rates are still very high and this needs to be sorted,” he told reporters, adding that in the new fiscal year starting on Wednesday, the strength in rural incomes and the pay hikes for government employees will provide some stimulus to demand.
Benchmark inflation based on the wholesale price index (WPI), which is below 1 per cent, is not a cause for concern as India was still growing, he added.
Bhartia pointed out that the consumer price index (CPI) which is currently high would follow the WPI with a lag effect, therefore reinforcing the case for an intervention by RBI.
Srinivasan said China invested about six times India in developing infrastructure. The industry body said that India must spend 9 per cent of its GDP in ramping up infrastructure, up from the current level of less than 5 per cent.
Srinivasan also said urbanisation would be key. “We need to build new cities, urbanisation has to happen,” he said, adding China has created 20 cities in recent years.
CII, calling for a manufacturing boost, pointed out that while manufacturing accounts for over 40 per cent of GDP in China, in India it is less than 20 per cent.