Indian industry has begun to feel the adverse impact of the frequent repo rate hikes by the Reserve Bank of India, which has been an increase of 190 basis points already in the current financial year, Confederation of Indian Industry (CII) said today, urging the central bank to consider moderating the pace of its monetary tightening ahead of the forthcoming policy. An analysis of results of 2,000-odd companies in the second quarter (July-September 2022) by CII showed that both the top line and bottom line had moderated on a sequential and annual basis. Thus, moderation in the pace of monetary tightening is the need of the hour, it argued.

According to CII, domestic demand is recovering well as mirrored by the performance of a host of high-frequency indicators. However, the prevailing global ‘polycrisis’ is likely to impinge on India’s growth prospects too. “Given the headwinds to domestic growth mainly emanating from the global uncertainties, the RBI should consider moderating the pace of its monetary tightening from the earlier 50 basis points,” the industry body stated.

“While CII is cognisant of the fact that RBI’s interest rate hikes of 190 basis points so far in this fiscal have been warranted to tame inflationary pressures, the corporate sector has now started to feel its adverse impact,” it said.

However, given the sticky core inflation at around the 6% mark, the RBI could consider hiking the key interest rates by an additional 25 to 35 basis points to tame inflation, CII suggested. The industry representative body pointed out that notwithstanding the recent moderation noted in the CPI headline print in October 2022, inflation continues to remain outside RBI’s target range for 10 consecutive months.

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With a yawning gap between credit and deposit growth, an additional rate hike will incentivise savers, thus providing an impetus to deposit growth and helping narrow the credit-deposit wedge, the CII said.

Further, with rising global risk aversion adversely impacting our foreign capital inflows, CII said that it posed challenges for financing India’s current account deficit. It said the country needed to keep a watch on capital flows across all three buckets — foreign direct investment, NRI flows and foreign portfolio flows (FPI). High focus only on FPI numbers may not always provide a complete picture, it cautioned.

CII stressed that the incipient signs of domestic recovery need to be preserved to help accelerate movement towards a normalised growth scenario. “As in the past, the RBI should use all the weapons in its arsenal to ensure that while through its actions inflationary expectations are well anchored, it should in no way muzzle the growth impulses,” it said.

The rate-setting Monetary Policy Committee of the RBI will announce its interest rate decision in the first week of December.