Unhappy over the Reserve bank of India's (RBI) more-than-expected 75-basis point hike in cash reserve ratio (CRR) to squeeze money supply, India Inc today cautioned that economic growth will be hit if accommodative monetary stance is reversed hastily.
"...The tipping point has not yet arrived for tightening of the monetary policy and if one proceeds in that direction hastily, economic growth is bound to take a hit. This, in turn, will effect employment generation that is critical at this juncture," Ficci President Harsh Pati Singhania said.
He said the RBI's move signals a further tightening of the monetary policy regime.
A Ficci statement said that small and medium entreprises (SMEs) are still borrowing at around 13 per cent, exports have contracted by nearly 20 per cent during October 2008 and October 2009 and imports are down by 21 per cent during the same period.
"Therefore...It is still premature to signal a tightening of the monetary policy and has cautioned that if this is complemented with fiscal tightening, the results would be disastrous," it said.
PHD Chamber also said that the hike in CRR may adversely impact the availability of funds with the banks for extending credit to the industry from the banking system.
The Reserve Bank of India has increased CRR - the bank deposits kept with the RBI -- 75 basis points.
However, short-term lending and borrowing rates between RBI and banks were kept unchanged.
