New Delhi: “We told you so!”
That’s what industry body Federation of Indian Chambers of Commerce and Industry (Ficci) is telling the government in the face of a challenging business environment; squeezing credit to tame inflation was not the right policy to adopt — especially when prices were rising due to supply-side bottlenecks.
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With the RBI lowering its growth forecast to 7.7% from 7.9% on Thursday, the economic slowdown is clear. So what does this mean for corporate India? According to Rajan Mittal, MD, Bharti Enterprises, “Fundamentally [a] slowdown will have an impact on new investments which are coming in.” And that’s why industry has been asking the government to look into the caps on some sectors like insurance and retail.
Chidambaram on Thursday attempted to reassure the industry that brisk lending would begin: ”If you go by the reverse repo, I think there is adequate liquidity. The point now is banks should not park excess funds with Reserve Bank. They have been advised to lend”. However skepticism remains. It’s not that easy to get money from banks, and interest rates continue to hover at a prohibitive 16-17%.
In response to help manage the challenging economic situation, Ficci has provided its own agenda — among other things it has asked the government to bring down CRR to 4.5% (2004 level) and the repo rate to 5%.
RBI will be reviewing its mid-term policy on Friday.