Enthused by return of industrial growth (index of industrial production - IIP) in the positive zone, India Inc today asked the new Reserve Bank of India (RBI) Governor Raghuram Rajan to cut interest rates in the monetary policy review next week to attract much-needed investments and give economic growth a leg up.
"In the very short term of course, an easing of benchmark rates by the RBI would provide the much needed demand traction which has been ailing segments like consumer durables," CII Director General Chandrajit Banerjee said.
After contracting for two straight months, industrial production entered the positive zone in July, recording a growth of 2.6 per cent on account of improved performance of manufacturing and power sectors.
This is welcome, though it is too early to presume that a recovery is underway, Banerjee said.
"To start with, the RBI must announce interest rate cuts in the mid-quarter review of its credit policy due on September 20," Assocham Secretary General D S Rawat said.
There is a need for creating conducive environment for investments, capacity creation and augmentation of industrial production on priority basis by initiating short term feasible solutions to the current growth hurdles, he added.
During April-July this year, factory output contraction remained flat at 0.2 per cent.
Besides rate cut, industry body Ficci said the government must clear hurdles to ensure implementation of big projects.
"Government needs to take some bold measures like reducing interest rates further, fast-track implementation of large projects like industrial corridors and through pro-active government procurement policies" Ficci Secretary General Didar Singh said.
The manufacturing sector, which constitutes over 75 per cent of the index, grew by 3 per cent in July compared to zero growth in the month a year earlier. During April-July, the sector saw a decline of 0.2 per cent compared with a contraction of 0.6 per cent in the period last year.
"Manufacturing sector in India is performing far below its potential. Significant interventions are required to ensure that India's manufacturing competitiveness improves. The National Manufacturing Policy now needs to be implemented with some alacrity," CII's Banerjee said.
Among the 22 industry groups in the manufacturing sector, 11 recorded positive growth in July.
"The positive manufacturing growth for July, though over the low base, does indicate some signs of up-turn in the sector as a result of certain initiatives taken by the Government in the last few months," Singh said.
However, consumer goods output contracted 0.9 per cent in July, compared with expansion of 0.7 per cent in the same month last year.
"Industrial growth is set to pick up further in the ensuing months, supported by revival in consumer goods demand as well as improving private investments from both domestic and foreign investors," President of PHD Chamber of Commerce & Industry Suman Jyoti Khaitan said.