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Time for RBI to cut rates

Anars, Phuljadis, bombs and rockets - all of these go up in smoke when it's Diwali. This Diwali, add to the list India Inc.'s mood. It's anything but optimistic, according to CEO SPEAK — a survey of top company executives conducted by Hindustan Times and research agency MaRS. Abhijit Patnaik reports. Slowdown dampens Diwali mood

india Updated: Oct 24, 2011 01:39 IST
Abhijit Patnaik

Anars, Phuljadis, bombs and rockets - all of these go up in smoke when it's Diwali. This Diwali, add to the list India Inc.'s mood. It's anything but optimistic, according to CEO SPEAK — a survey of top company executives conducted by Hindustan Times and research agency MaRS.

65% of the CEOs surveyed expect India's economic growth to be no more than 7.5% this fiscal in contrast to earlier projections of 9%.

Signaling deeper and more structural constraints to any immediate recovery, about 79 % said they do not see a reversal in the slowdown before the end of this financial year.

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High interest rates are to be blamed the most. An overwhelming majority of the respondents — 67% — felt it is time for the Reserve Bank of India to reverse its hawkish stance and start cutting interest rates.

"The unbearable hikes in interest rates are hurting both growth and employment," said Niranjan Hiranandani, managing director of Mumbai-based Hiranandani Group, a leading construction company.

The central bank has increased its benchmark interest rate seven times since last Diwali, in an attempt to curb rising prices.

Although inflation remained a major concern for the economy, most CEOs said the remedy does not lie in increasing interest rates as the spike in prices has come mostly on the back of supply shortages and rise in global commodity prices.

The survey also revealed that most CEOs see lack of infrastructure, more than what is being reported as "lack of governance", as the biggest hurdle that could keep India's growth trajectory from scaling the 10% — mark as China did more than a decade ago.

The results of the HT-MaRS survey corroborates the latest projections from the World Bank and the assessment of finance minister Pranab Mukherjee, who said last week that it would be cause for celebration if GDP grows 8% this fiscal.

"Investors are holding back in the face of regulatory uncertainty (environmental clearances, land acquisition laws, tax reforms), banks are highly exposed to power projects facing delays due to the lack of coal and gas feedstock, and mining (especially of iron ore) has been hit by recent scandals in Karnataka and Orissa, putting the future growth of the steel industry in doubt," the World Bank said about India in its latest economic outlook.

The worsening slowdown has begun to hit the job market as well.

Most companies have adopted a wait-and-watch approach to hiring. About 67% of the CEOs participating in the survey said hiring outlook at their respective firms was either "neutral" or "negative."

Some, however, remain optimistic. "I do foresee an upturn in the economy this financial year," said VN Dhoot, Chairman and MD, Videocon. "Sales will outperform those of last year." Let's hope he's right.

With inputs from Zehra Kazmi and Shubhi Vijay