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RBI unlikely to lower rates as inflation soars: India Inc

According to a survey by the Assocham, though the economy started showing early signs of a possible slowdown, the RBI would abstain from cutting the interest rate.
IANS | By HT Correspondent, New Delhi
UPDATED ON MAR 16, 2008 03:21 PM IST

Indian businessmen have voiced concern that the Reserve Bank of India (RBI) is unlikely lower interest rates as inflation rate soared to a nine-month high of 5.11 per cent.

According to a survey by the Associated Chambers of Commerce and Industry of India (Assocham), though the economy started showing early signs of a possible slowdown, the RBI would abstain from cutting the interest rate.

"The government is confronted with the dilemma of keeping the inflation rate low and prevent further hardening of the interest rates, hence they are left with little elbow room," said Venugopal N Dhoot, Assocham president and chairman of Videocon Group.

In the week ending March 1, inflation reached a level of 5.11 per cent, compared to 5.02 per cent in the previous week, according to the data released by commerce and industry ministry.

This is for the second time that inflation breached the 5 per cent benchmark, set by the central bank for 2007-08. The rise has been mainly due to high prices of wheat, rice, pulses and edible oil.

The prices of primary articles have increased by 6.9 percent over the corresponding week of the last month while fuel prices have risen by 5.4 per cent as a result of increase in the retail prices of petrol and diesel, Assocham said.

Almost 67 per cent of the 130 chief executive officers surveyed indicated that the government's foremost priority should now be to tame the spiralling inflation while keeping an eye in maintaining the growth rate of 9 per cent.

Finance Minister P Chidambaram proposed to reduce the CENVAT rate from 16 to 14 per cent and lower excise duties of auto, pharma sectors and some items of mass consumption in the union budget for 2008-09.

Such measures, the survey showed, would do no good in checking the galloping inflation as some of the companies might not even pass the benefit to consumers to maintain their own profit margins.

With major players like the US, Europe and China also fighting intense inflationary pressures, it is extremely difficult for India to insulate itself from such happenings, the chamber said.

"The world over, inflation in the first nine months of current fiscal on account of increase in the petroleum prices has been 17 per cent. The pressure on the energy prices is expected to further intensify as the crude oil prices have crossed $110 per barrel mark," the industry body said.

India's industrial production in the month of January has grown by merely 5.3 per cent as compared to 11.6 per cent growth in previous year. The growth in manufacturing sector has halved to 5.9 per cent in January of this fiscal compared to 12.3 per cent growth in same month in 2006-07.

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