New Delhi: Corporate India worries as RBI gets ready to announce its Annual Policy. India’s CEOs and CMDs, especially those representing real estate, automobiles, housing finance, banking and financial services are a worried lot on the eve of the Annual Monetary Policy to be announced by the Reserve Bank of India.
According to a Business Service conducted amongst 150 CEOs and CMDs by Assocham, it was found that CEOs feel indications are that the RBI would take further measures to tighten the monetary flow, as credit growth continues to remain much above 20%, as desired by the Central Bank.
Nearly, 85% respondents are confident that RBI will tighten the flow of credit in the real estate as this sector has witnessed maximum escalation in prices. The other sectors, which are affected by interest rate hikes, are construction, automobiles and banks. Car manufacturers and dealers have already started feeling the pinch of decline in their sales. The cost of deposits flow is rising and pressure on margins building up.
60% corporate heads, bankers and economists across different sectors are not sure whether interest rates have peaked and RBI would not be tempted to further tighten money supply in the system. However, 40% respondents felt that interest rates are somewhat near the peak.
Around 74% CEOs were of the opinion that tight monetary policy would affect the medium and small enterprises in the economy more than the large business houses.
A large majority of those covered were quite emphatic about that since they felt that the Indian economy was growing at 9% and inflation rate of 5-5.5% was tolerable as resilience builds up. Although due to seasonal factors the headline inflation continues to rule above the 6% mark for the last few weeks and the average price rise for 2006-07 remains within the limit projected by the RBI.
Even in financial year 2007-08, CMDs and CEOs predict average inflation to remain within the range of 5-5.5%. Bulk of the blame for inflation lies with the huge capital flows into the country, which in turn get translated into additional money supply.
“RBI faces a unique problem. While on one hand, it tries to suck liquidity through holding the CRR and repo rate, at the same time it is faced with fresh inflows negating tough measures”, said Mr Venugopal Dhoot, President Assocham.
The hike in interest rates as a result of tightening measures has hurt not only exports but also given the cost-push to manufacturing, which in turn would lead to inflation. The challenge is to break the circle and find a via media, is what most corporates said was the only solution.
92% business leaders surveyed were convinced that RBI policies would hurt the GDP growth rate in the economy in fiscal 2008.
67% respondents expect that the Annual Policy would peg the growth rate for this fiscal between 8.5 to 8.7% and the reminder 33% of them were of the view that the projection would be between 8-8.5% growth rate.