Tight money to slow down growth, says CII

The Confederation of Indian Industry (CII) on Friday warned that any further tightening of money supply by the Reserve Bank of India would trigger a slowdowm of the economy.

"There are already emerging signals in the form of slowdown in the automotive sector and retail banking,'' CII President R. Seshasayee said in a statement here. Mr. Seshasayee said that while inflation control was legitimately at the top of the national agenda, "it is important that growth is not traded off in the bargain.''

The RBI recently announced another increase of 25 basis points in the repo rate (the rate at which RBI lends short-term money to banks) to 7.75 per cent and increased the cash reserve ratio to 6.5 per cent from 6 per cent. The central bank's move would suck up Rs. 15,000 crore liquidity from the system. The CII President said a large number of projects were in the pipeline and any more intervention by the RBI could "force companies to rethink their investment.''

He said that if at all the central bank had to intervene it should be on a selective basis and restricted to the segments where overheating was felt. He also wanted that the RBI should not surprise industry by sudden jerks. The CII chief said industry had to live with appreciation of the rupee even if it hurt exports. "While the supply side measures take effect, industry might have to accept in the short term, appreciation of the rupee even if it means that exports are hurt a bit.''

He hoped that the industry would improve productivity and competitiveness in the face of the adverse exchange rate. For improving supply side constraints, post grain harvest measures like cold chain infrastructure should be built in and over the medium term, agricultural productivity must match the ever-increasing demand, he said.