CII, Ficci ask RBI to lower interest rates

In its recommendation for the mid-term review of the annual Monetary Policy 2007-08, leading industry chambers of the country "" the Confederation of Indian Industry (CII) and the Federation of Indian Chamber of Commerce and Industry (Ficci), have called upon the Reserve Bank of India (RBI) to lower the interest rates affecting investments and economic growth of the country.

According to the CII, with the latest rate of inflation declining to 3.23 per cent, which is less than the lower limit of RBI's tolerance levels of 4-4.5 per cent, it is the right time to review the tight monetary policy regime.

A recent snap poll conducted by the CII, had revealed that 69 per cent of the CEOs expected the interest rates to be lowered to about 12 per cent prime lending rate (PLR) from the current level of 13.25 per cent.

Both the chambers are of the view that although the decline in bank credit from 33 per cent in June 2006 to about 23 per cent in August 2007 has helped RBI manage liquidity, it has impacted the industrial output, adversely.

The CII stated that India would need investment rates in excess of 36 per cent of the gross domestic product (GDP) to achieve 10 per cent GDP growth rate in the medium term, which is important to increase the per capita income and reduce the income inequalities.

A review of the credit needs of some important sectors by Ficci revealed the need for 'direct agriculture' lending for investments in agri-marketing infrastructure by private players in the sectors like construction of warehouses, cold chain transportation and others without any upper ceiling.

This would make more funds available for activities that build the agricultural value chain since banks have a large corpus of funds available to lend under the 'direct finance' category of priority sector lending.

Ficci survey further stated the need to establish a Credit Bureau with unique customer ID with credit history and a centralised data information centre that would act as back-end support for risk management of credit.

Both the chambers expressed concern over the appreciating rupee particularly impacting the exporters of the small and medium enterprises (SMEs) and reaffirmed that reducing interest rates would go a long way in reducing the operating costs of exporting SMEs that have been facing decline in profit margins due to the appreciating rupee.