With economic growth and industry under pressure due to global financial turmoil, the Indian industry and multilateral agency Asian Development Bank (ADB) have called for more monetary measures like cuts in interest rates and fiscal sops to boost consumption and manufacturing.
“Probably (policymakers) need to work consciously to get interest rates reduced by 200-300 basis points, I think that is one agenda that the government will work on, and that thing can be done through easing liquidity a bit more,” said Confederation of Indian Industry President and ICICI Bank Managing Director KV Kamath at the India Economic Summit in New Delhi.
Inflation falling well below double digits will give policymakers confidence that in the next three or four months it would come down to 4-5 per cent. Once interest rates are down, lenders will work in concert to see that credit is available to all sectors of the economy, Kamath said.
Rajat M Nag, managing director-general, ADB, said: “The Indian economy is likely to grow at around 7.5 per cent this fiscal. Next year, it may be over 6 per cent but below 7 per cent.”
However, growth in India and China will be healthier compared to the developed countries like the US, Nag said. “We do not expect a full-scale financial crisis in Asia including India, as the banks are strong, non-performing assets are low, short-term external debt is healthy and regulations are sound,” he added.
However, Nag said lenders must unfreeze credit to crucial sectors like infrastructure to protect the long-term interests of the economy and to take care of the poor. Nag supported the RBI’s steps to increase liquidity and moderate interest rates.
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Kamath said loss of confidence by lenders in the current circumstances was understandable, but still unwarranted. The challenge India is facing today was the consequence of fighting inflation, leading to monetary tightening and a liquidity squeeze. “Industry is under pressure and some are cutting production. The capital market is also under pressure and companies are not able to raise funds,” the ICICI Bank CEO said.
Bajaj Auto Chairman Rahul Bajaj said the financial sector may stabilise a little before the real economy in the next 12-18 months. He expressed doubts that the economy would grow by 7 per cent in the second half of FY 2009.
“There is a need for further cuts in repo rate, SLR and CRR. The government should also give a fiscal stimulus to infrastructure projects,” he said.
B Ramalinga Raju, founder and chairman, Satyam Computer Services, said the IT sector was highly global in nature and impacted most by the global turmoil. He said the developed world should not resort to protectionism.