Concerned over the sluggish manufacturing growth, India Inc has pitched for a rate cut by RBI to provide impetus to recovery through higher consumption spending and opening up channels for investment. Dragged down by sluggish manufacturing sector growth, Indian Gross Domestic Product (GDP) growth slowed down to 5.3% y-o-y to 14.39 lakh crore in Q2FY15 as against 5.7% in the previous quarter. Manufacturing sector, having around 75% share in industrial production, was a major dampener with a growth of 0.1% during the second quarter as against the 1.3% registered in the same period of the previous year.
Industry body FICCI has highlighted that though growth in agriculture and services sector is in line with expectations, the subdued growth in manufacturing at 0.1% during quarter is a matter of concern. Interest rate is an important element of the cost structure for manufacturing and given the current inflation situation RBI should ease the monetary policy stance as this would give a boost to investment sentiments. Further, it added that the present wave of optimism needs to be maintained through continued efforts by the government towards further improving the tax and policy environment to encourage enterprises to expand. The Confederation of Indian Industry (CII) stated that there is need for continuing with proactive policies which would help revive investments and address the bottlenecks plaguing the agriculture and industrial sectors. The central bank should review its status quo approach and move towards paring interest rates in its forthcoming monetary policy to give a fillip to recovery.
There is a strong demand from the industry reeling under slowdown to see lower interest rates and is expecting at least 50 basis points cut in the benchmark interest rate by RBI on its bi-monthly monetary policy due on Tuesday. Meanwhile, industry expectations for a rate cut are not unrealistic and based on more than expected decline in the retail inflation which is currently hovering at 5.52 per cent for October, much lower than the RBI target of 8% by January, 2015 and 6% by January, 2016.
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