Expressing dismay over the Reserve Bank of India’s continued focus on containing inflation, India Inc., on Monday, feared the tight monetary policy could lead to stagnation and blow up into a major economic crisis that could threaten the livelihood of millions of people.
Industry bodies were surprised at the RBI taking a unilateral stance rather than a co-ordinated action with the Union Government to steer the economy through unsettled global economic scenario.
On “slowflation”
CII, FICCI, Assocham and PHD Chambers together questioned the rationale of the RBI in not revising the basic policy rates when the latter itself had conceded that persistent inflation was due to supply-side bottlenecks and that the finance minister himself had suggested the need for a rate cut.
Apart from expressing his surprise at the RBI not changing the CRR (cash reserve ratio) and the Repo rate, FICCI General-Secretary Rajiv Kumar also questioned the rationale of the RBI’s action when the latter had attributed the continuing inflation to supply-side bottlenecks. He wondered how high interest rates could bring down prices of vegetables and protein. The high interest rate coupled with the government’s inability to move ahead with structural reforms, he feared, put the economy on a “slowflation” and create a major crisis.
CII Director-General Chandrajit Banerjee said the RBI seemed to have missed the gibber picture by being inflation-centric in its policy and not co-ordinating with the government. He apprehended the steadily sliding GDP (gross domestic product) would put in jeopardy livelihood of millions of people.
Assocham President Rajkumar Dhoot regretted that the RBI ignored even the Finance Minister’s call for a rate cut and the expectation in this direction, particularly when interest rates seemed to stabilise.
A cut in the policy rates, he felt, would have given a boost to investment and helped the economy regain its growth momentum.
PHD Chamber President Sandip Somany said the impact of RBI’s stance would affect business confidence, the investment scenario, trigger stagnation, and the economy’s growth prospects.
