India Inc for accommodative RBI stance despite high inflation

Despite wholesale inflation surging to a 14-month high of 7.52 per cent in November, India Inc hoped for an "accommodative" monetary policy by the Reserve Bank of India (RBI).

"The rise in inflation should not come in the way of an accommodative monetary policy announcement on December 18, as it is of utmost importance to strengthen investor sentiments which have been adversely affected by high interest rates," Confederation of Indian Industry (CII) director general Chandrajit Banerjee said in a statement on Monday.

"High interest rates at this stage may only worsen the industrial slowdown without helping ease inflation," he said.

Wholesale price index-based inflation during November soared on high vegetable prices, as against 7 per cent in October. It reached the highest level since September 2012 when it was 8.1 per cent. (Read more)

The RBI had raised key lending rate by 0.25 per cent in the previous quarterly monetary policy on October 29 to tame inflation. High interest rates have been worrying Indian industry, which is already facing slow growth.

"With the mid quarter monetary policy review due shortly, we hope RBI will take due cognisance of the fact that growth is still feeble and needs support," Ficci president Naina Lal Kidwai said.

"IIP data released last week indicated negative growth in October 2013. The demand situation has not yet improved, which is reflected in the de-growth in the consumer durables segment."

CII said the government should take proactive policy initiatives with a focus on enhancing structural reforms, thrust on project implementation, removing procedural bottlenecks, providing conducive regulatory environment, which will help ease supply constraints.

Voicing similar concerns, Assocham secretary general D S Rawat said the increase in WPI inflation before the RBI's monetary policy review on Wednesday was certainly a big dampener for India's macro picture.

"Still, the RBI should take a contrarian call this time around and hold the interest rates, if not drop them, since the data suggests that inflation has largely come about riding on a steep rise in prices of food articles, particularly fruits and vegetables," Mr Rawat said.

Mr Rawat further said that a hike in interest rates by the apex bank will further hit industrial demand, while prices of food articles will have to be tackled by supply side improvement.