Growth may face downward spiral: Industry warns RBI

New Delhi: Disappointed by yet another interest rate hike, industry on Tuesday described the RBI as being the most “aggressive“ central bank to tame inflation, warning that beyond a point salvaging a downward growth spiral could become difficult.

Industry across different sectors said the 50 basis points increase in the key interest rates was more than expected and would hurt the investment sentiment, resulting in supply constraints.

"With 11 consecutive interest rate increases in the last 15 months, RBI has emerged as the most aggressive central bank which is tasked with containing inflation," industry chamber CII said.

It said at a time when there were indications of a clear slowdown in industrial and economic output, "this is a matter of great concern, since there could be a tipping point beyond which salvaging a downward spiral of growth could be an arduous task."

Ficci, too, expressed "major disappointment" with the rate hike, stating that the RBI has decided to sacrifice growth.

"In the trade off between growth and inflation, the RBI has clearly decided to sacrifice economic growth," Ficci said.

The exporting community pointed out that the interest rates for exporters have gone up by more than 71 per cent since March, 2010, if the withdrawal of 2 per cent subvention earlier this year was taken into account.

"How exporters will mange such steep rise and remain competitive?", FIEO President Ramu Deora asked.

During April-June, 2011-12, exports grew by 45.7 per cent to USD 79 billion.
In the midst of an outcry by the industry, the RBI felt that while there was a moderation in growth, "there is no evidence, as yet, of a sharp or broad-based slowdown".

Industrial growth fell to 5.6 per cent in May this year from 8.5 per cent in the same month last year.