New Delhi: With economic growth slowing to 7 percent in the April-June quarter, India Inc said on Monday the subdued performance indicates that the cost of capital needs to come down, demanding a rate cut by RBI.
"Both consumption and investment levers need a thrust. While the government stands committed to further the reforms agenda, we need to equally create conditions that provide capital at an affordable cost to our entrepreneurs.
"We hope that RBI will usher in a deeper cut in policy rates in its September review of the monetary policy," Ficci President Jyotsna Suri stated.
The GDP growth slowed to 7 percent in the June quarter, from 7.5 percent in the previous quarter, amid deceleration in farm, services and manufacturing sectors.
"With prices seemingly under control, we urge the monetary authority to focus on ensuring that cost of finance to industry becomes competitive, more so especially in the context of subdued growth as indicated by the recent IIP numbers," Assocham President Rana Kapoor said.
"Easing of monetary conditions would lead to a lower lending rate framework that would aid both consumption and investment demand. Therefore, RBI must give due consideration to reviving industrial growth in the country," he added.
The industry body also expressed concern over anticipated slowdown in the pace of reforms.
"The government needs to keep on pushing at more ground-level reforms and improve implementation so as to realise the economy?s true potential.
"The need is for creating an investment- and industry-friendly environment that is largely focused on growth, job creation, poverty alleviation and passing the benefits of the economic growth to the lowest sections of the economy," said Kapoor.
"While the process of recovery might have started, we need to continue with the reforms process to ensure that we are firmly rooted on a sustainable growth path."
The Gross Value Added (GVA), a new concept introduced by CSO to measure the economic activity, also slipped during the first quarter to 7.1 percent, from 7.4 percent a year ago.
However, CII Director General Chandrajit Banerjee termed the 7 percent growth as "impressive", as it is higher than 6.7 percent experienced in the same period last year, noting that it bolsters the perception that the economy is showing signs of a turnaround and is on the road to recovery.
Going forward, CII expects some pick-up in investments as the impact of measures taken by the government towards de-clogging the project pipeline would be visible in months ahead.
Banerjee stated that the government should continue to push critical reforms and take pro-active steps to effect simplification of procedures, ensure transparent and flexible tax system and work towards a political consensus for ensuring early passage of GST, labour laws etc to rev up business confidence and help ramp up demand in the economy.
"RBI should ease its monetary policy stance and cut interest rates in its forthcoming monetary policy," Banerjee said.
GDP grew at 7.5 percent in the January-March quarter while it was 6.7 percent in April-June last year, according to data from the Central Statistics Office (CSO).
"GDP growth this year will be led by consumption growth (backed by a falling inflation and monetary easing). Investment growth revival will take place once capacity utilisation starts increasing. Weak global demand is also attributed to lower growth in the first quarter," Chief Economist, India Ratings & Research, Devendra Kumar Pant said.
The nominal GDP and GVA at current market price showed a steep decline in the quarter under review. The nominal GDP slipped to 8.8 percent in Q1 from 13.4 percent a year ago while the GVA growth rate nearly halved to 7.1 percent from 14 percent last year.
"The latest numbers depict an economy that is in the early stages of recovery and is showing modest improvements. Going ahead, we would expect growth rates to improve, with the government also likely to impart a greater push via reform measures," said Anis Chakravarty, Senior Director, Deloitte in India.
Kapoor said if the monsoon concerns are true, it could impact the agriculture production and stoke worries over food inflation and economic growth.
The government towards the beginning of the fiscal has projected a growth rate of 8.1-8.5 percent in the current fiscal, which may be difficult to achieve.
RBI, which has cut interest rate by 0.75 percent in three tranches since January, is scheduled to announce the next bi-monthly policy on September 29.
