New Delhi: Even as the industry chamber Confederation of Indian Industry (CII) on Tuesday warned that rising interest rates may hurt future investment, finance minister P Chidambaram told industry captains that the Indian growth story remains intact and he asked the industry to continue with their investment plans.
Future investment plans of Indian firms could be delayed as high interest rates, slackening consumer demand and rising raw material costs weigh on profitability, CII said.
While plans for $700 billion of investment are in place for the next three years, investments beyond that are being re-looked at, CII president and ICICI Bank CEO & managing director KV Kamath said after the meeting of industry leaders with the finance minister.
Kamath said the industry outlined the constraints like falling demand, high interest rates and high commodity prices impacting the cost of production.
However, he said real interest rates were still not very high, while he ruled out any easing of the monetary policy as long as high inflation persists. “If inflation is an issue.till we see inflation easing, then it would be unrealistic to expect any easing of monetary policy,” he said.
Kamath said the pipeline (of investment projects) is happening, but industry is assessing very hard whether to make that incremental investment or not. The Reserve Bank of India has raised it short-term lending rate to a seven year high of 9% after a series of measures to tighten monetary policy in a bid to contain soaring inflation that has hit a 16 year high of 12.63% for the week ended August 9.
He quoted the finance minister as assuring the industry that they “should look at it very positively that an 8-9% growth is here to stay and this is backed by numbers.” Kamath said Chidambaram reported figures from CMIE (Centre for Monitoring Indian Economy) database, which talks of a monthly accretion to new projects to the tune of Rs 150,000-170,000 crore that would be around $40 billion.
On annualised basis, this turns into an investment of $450-480 billion. He said the finance minister instilled confidence in the industry and asked them to continue with their investment plans. Kamath said CII would stay with its estimates of around 8-8.5% GDP growth this fiscal.
