This Article is From Nov 26, 2011

No connection between high interest rate and low IIP: Montek

No connection between high interest rate and low IIP: Montek

Amid India Inc blaming the high interest rate regime for decline in industrial output growth, Planning Commission Deputy Chairman Montek Singh Ahluwalia on Friday said there is no connection between the two.

"I would not draw any connection between the rate hike and decline in industrial production. The rate today is roughly what it was when the economy was growing at 9 per cent," Ahluwalia said when asked if RBI's tight monetary policy was hampering industrial production.

The Reserve Bank has hiked interest by 3.75 per cent since March 2010 to tame inflation, which is hovering at around 10 per cent. The high interest rate regime has made credit expensive for corporate as well as consumers, which the industry says has hit growth.

Ahluwalia, who was talking on the sidelines of a FICCI meet, said there are other global and domestic factors that are affecting factory production.

"I do not think the slowing down (of industrial production growth) should be attributed to only the short-term interest rates," he said.

The Index of Industrial Production (IIP) has slipped to a low of 1.9 per cent in September, as per the latest data released. It was 6.1 per cent in September last year.

"We are concerned that the pace of growth in the economy has gone down. But it (IIP data) is only a one month affair. We need to bring this up," Ahluwalia said.

Apex industry body CII on Friday blamed the high interest rate regime for slowdown in IIP.

"This probably reflects the impact of RBIs interest rate hikes together with the continuous rise in inflation. With the global economic scenario also deteriorating, the RBI should not only pause but begin to reverse its interest rate hikes," CII Director General Chandrajit Banerjee said.