S. Gopalakrishnan, the new president of the Confederation of Indian Industry (CII) lobby group, on Monday called for a policy rate cut of one percentage point by the Reserve Bank of India (RBI) this fiscal year to revive industrial investment and boost economic growth.
Gopalakrishnan, co-chairman of Infosys Ltd, also urged speedy implementation of the goods and services tax (GST).
“The Reserve Bank of India needs to work in tandem with the government in boosting growth by easing interest rates by at least 100 bps (basis points) in the current fiscal,” said Gopalakrishnan. “Even if you look at the GST, it can add 1-1.5% to the GDP. So, there are things that can be done to revive sentiment. We cannot do much about the external factors.”
One basis point is 0.01 percentage point.
India’s economic growth is estimated at 5% in the year ended 31 March, the slowest pace in a decade. High borrowing costs have contributed to a slowdown in corporate investment, and consumer spending on durables such as automobiles. The car industry posted a decline of at least 7% in sales in the year gone by, the first fall in 12 years.
RBI cut its policy rates by a quarter of a percentage point in March. India’s wholesale price inflation dropped to 5.96% in March from 6.84% in February, at least 30 basis points (bps) below market estimates, giving the RBI room for a rate cut in the first week of May, when the central bank announces its monetary policy.
Gopalakrishnan, who replaced Adi Godrej as CII president, said the economy may grow at 6-6.4% in the current fiscal, but said achieving an average growth rate of 8% in the 12th Plan period (2012-17) will be difficult.
“Fragile global recovery and tough domestic conditions have made it difficult to recover at a faster pace,” he said. “The best part is that an awareness has already been created (about the need to boost growth). The important thing is current economic situation has been identified as a major problem in the government.”
Credit rating agency Crisil Ltd on Monday cut its forecast for gross domestic product (GDP) growth in 2013-14 to 6% from 6.4% earlier, citing slower growth in industry and services. According to the Economic Survey, the country’s GDP is projected to grow at 6.2-6.7% in the current fiscal.
“Weaker-than-anticipated pick-up in household consumption demand will act as a drag on manufacturing recovery. Issues related to mining and lack of speedy project clearances, (will) continue to hurt manufacturing, infrastructure and investment activity,” Crisil said in its report.