Mumbai, October 25
The Reserve Bank of India on Tuesday lowered the economic growth forecast to 7.6 per cent for the current fiscal even as it expressed hope that inflation will start coming down from December.

"Slower global growth will have an adverse impact on domestic growth, particularly on industrial production, given the rising interlinkages of the Indian economy with the global economy," the RBI said in its monetary policy review for the second quarter of fiscal 2011-12.

The central bank had earlier projected the Indian economy to grow by 8 per cent in 2011-12, lower than 8.5 per cent recorded in 2010-11.

"While growth in advanced economies is already weakening, there is a risk of sharp deterioration if a credible solution to the euro area debt problem is not found," the Reserve Bank said.

Besides inflation, the RBI said slowdown in project investments was also impacting growth.

The overall inflation has remained above 9 per cent since December 2010. It was 9.72 per cent in September.

"Elevated inflationary pressures are expected to ease from December 2011. The projection for WPI (wholesale price index) inflation for March 2012 is kept unchanged at 7 per cent," the central bank said.

The RBI also indicated that it might not go in for another rate hike in its midquarterly review in December 16, provided the inflation does not shoot up further.

"If the inflation trajectory conforms to projection, further rate hikes may not be warranted," the RBI said.

It said concerted policy focus is needed to generate adequate supply response in respect of items such as milk, eggs, fish, meat, pulses, oilseeds, fruits and vegetables.

"Structural imbalances in protein rich items will persist. Production of pulses this year is expected to be lower than last year. Consequently, food inflation is likely to remain under pressure," RBI said.

Food inflation, which account for 14 per cent in the overall inflation, stood at a six month high of 10.60 per cent . — PTI

Mumbai, October 25
Financial stocks, led by HDFC Bank, today dropped by as much as 7 per cent on the Bombay Stock Exchange on Tuesday after the Reserve Bank of India raised its lending rates by 25 basis points to tame inflation.

Following the central bank’s move the rate sensitive stocks, mainly banking, saw massive selling pressure. HDFC Bank plummeted by 7.25% to Rs 449, SBI plunged 4.12% to Rs 1,828.80 and ICICI Bank lost 1.89% to Rs 852.85. Besides, Axis Bank was trading 4.78% lower, Punjab National Bank fell 3.70% and Union Bank was down 1.20%. Led by losses in the bank shares, the BSE Banking Index (Bankex) was trading at 10,743.14, 2.80% lower than the last close during the afternoon trade.

Market experts said rate sensitive stocks declined amid fears that loans, including those for home and auto, may become more expensive after the Reserve Bank has raised key rates for the fifth time this fiscal to tame inflation.

The series of rate hikes has cumulatively increased interest rates by 525 basis points.

Meanwhile, in a kneejerk reaction to the rate hike, auto and realty shares, too, witnessed some selling pressure.

Realty giant DLF was trading with a loss of 0.72% and Unitech fell by 1.30%. From the auto space, Bajaj Auto lost 0.69%. — PTI

New Delhi, October 25
Facing criticism over lack of decision making on economic issues, the UPA government on Tuesday cleared its ambitious national manufacturing policy (NMP) that seeks to create a massive 100 million additional jobs in the manufacturing sector by 2025 as well as create large sized industrial zones with easier compliance and labour laws.

The new policy, cleared by the cabinet, seeks to boost the stagnating manufacturing sector to contribute at least 25 per cent of the national GDP by 2025. The policy has been discussed for almost a year but was stuck due to objections from the environment and labour ministries.

The share of manufacturing in India's GDP has stagnated at 15 to 16 per cent since 1980 while the share in comparable economies in Asia like China, South Korea, Indonesia and Malaysia is much higher at 25 to 34 per cent. Also, the manufacturing sector has a multiplier effect in creation of two to three additional jobs in the allied sectors.

The policy seeks to empower rural youth by imparting necessary skill sets to make them employable. Sustainable development and technological value addition in manufacturing have received special focus.

The policy will be a partnership between the central and state governments. The former will create the policy framework, provide incentives for infrastructure development on a public private partnership basis through appropriate financing instruments, while state governments will identify the suitable land and be equity holders in the national investment and manufacturing zones (NIMZs).

Large scale China style industrial zones will be set up in the form of national investment and manufacturing zones — greenfield integrated industrial townships with a land area of at least 5,000 hectares. Industrial townships are proposed to be self governing and autonomous bodies and managed by a special purpose vehicle.

Seven regions under the Delhi Mumbai industrial corridor have been identified as NIMZ in the states of Gujarat, Maharashtra, Haryana, Rajasthan, Madhya Pradesh and Uttar Pradesh.

While the NIMZs have been identified, the proposals apply throughout the country wherever industry is able to organize itself into clusters. The first phase of the NIMZ will be established along the Delhi Mumbai industrial corridor which will see early results in the next few years.

A defining feature of the policy has been the endeavour to improve the business regulatory environment by providing single window clearances. In order to protect the interests of labour in the eventuality of a closure of a unit, a suitable mechanism has been devised using innovative job loss policy and sinking fund to insure workers against such loss.

Green manufacturing has received a special attention. Also, small and medium enterprises will be given access to this patent pool up to a maximum of Rs 20 lakh for acquiring patented technologies.

New Delhi, October 25
The cabinet committee on economic affairs on Tuesday approved support prices for the 2011-12 rabi season, fixing the maximum retail price (MSP) of all-important wheat at Rs 1,285 per quintal, an increase of Rs 165 per quintal over the last year’s initially declared rate of Rs 1,120 per quintal which prompted enraged wheat farmers in Punjab and Haryana to declare a “crop holiday” in some areas as a mark of protest.

Official sources, however, maintained the “comparatively substantial” hike of 14.7 per cent had been affected keeping in mind the crucial assembly elections in seven states, including Punjab and UP.

In comparison, the hike in the MSP of wheat last year was a far less at Rs 20 a quintal. Wheat farmers initially got a support price of Rs 1,120 a quintal on which the government later declared a bonus of Rs 50.

The sources, however, said this year too farmers had a good chance of getting a bonus, thanks to the assembly polls. The farmers however had been gunning for much more — Rs 2,200 per quintal in fact, quoting the Swaminathan committee formula of cost plus 50 per cent. In comparison other rabi crops have got a definitely substantive increase as part of the government’s strategy to increase farmers’ interest in other foodgrain and increase country’s self sufficiency in pulses besides taking them out of the wheat-rice cycle.

The MSP for barley has been fixed at Rs 980 per quintal, up 25.6% (increase of Rs 200 over last year), gram at Rs 2,800 per quintal, a 33.34% hike, lentil (masur) at Rs 2,800 a quintal, up 24.4%, rapeseed/mustard Rs 2,500 a quintal, up 35% and safflower at Rs 2,500 a quintal, up 38.8% over the previous year.

While the government believes the hike affected this year, compared to 6.36% last year, is sufficient to take care of Congress’ political needs, the suggestion has found vehement objection from Punjab and Haryana farmers who have demanded a maxim retail price of at least Rs 2,200 in consonance with step hike in cost of farm inputs.

New Delhi, October 25
Industry has said the 25 basis point rate hike by the Reserve Bank of India would further weaken economic growth, but expressed relief at the central bank's hinting at a pause in pushing up the lending rates.

Industry welcomed the RBI move to deregulate savings bank interest rates, a step which lenders said could fetch better returns for depositors as competition will intensify.

"Yet another interest rate hike (effected) by the Reserve Bank will further weaken economic growth and impact all other indicators," Associated Chambers of Commerce & Industry (Assocham) president Dilip Modi said on Tuesday.

However, the central bank has hinted that it may not hike the short term policy rates further.

"One of the main positives of the RBI policy is the indication that it will not raise policy rates further... The second positive is the savings rate deregulation which will give banks more freedom," CII director general Chandrajit Banerjee said.

Expressing similar views, FICCI secretary general Rajiv Kumar said, "There was a definite statement of intent from RBI on ruling out further rate increases in December.

"The deregulation of saving bank deposit rate is a welcome move and is likely to lead to increased product innovations across banks through more competition."

FICCI, however, expressed concern as to whether smaller banks would be able to compete in the market with the larger banks after this move.

The RBI on Tuesday hiked interest rates by 25 basis points. With this, the short term lending (repo) and borrowing (reverse repo) rate now stand at 8.5 per cent and 7.5 per cent, respectively. This is the central bank’s 13th hike in a span of 20 months to tame inflation. — PTI

TNS adds from Chandigarh: The hike in interest rates by the Reserve Bank of India has created a lot of resentment in the trade and industry. With this rise all 47 banks shall be further raising their basic lending rates once, which will be highly detrimental for industrial production.

While expressing their displeasure with the hike in interest rates, the Haryana Chamber of Commerce & Industry (HCCI) said the move would result in hike of rate of interest on loans to micro, small and medium scale industries, which are already reeling under financial constraints. “Already, these units are getting term loans and working capital at exorbitant rates, varying between 14 per cent to 14.5 per cent”, he noted.

A L Aggarwal, general secretary of the chamber, said the continuous tight monetary policy which is being exercised by the Reserve Bank to rein in inflation would simultaneously result in negative growth and have adverse impact on investment in trade and industry as well as adversely affect the very viability of micro, small and medium enterprises. “Instead, the industry expected the central bank to have suggested some corrective measures to improve productivity in industrial sector to maintain growth,” he added.

He suggested the RBI should reduce the rate of interest, which should not exceed 10 per cent per annum, on loans to all micro units,to save them from total collapse.

New Delhi, October 25
The government on Tuesday approved a proposal to increase the country's contribution to the International Monetary Fund, which would make it the eighth largest shareholder in the Washington, DC-based multilateral agency.

The cabinet's approval to increase India's quota in the IMF follows the Fourteenth General Review of Quotas of the agency.

"India's quota share at the IMF will increase from 2.44 per cent to 2.75 per cent, making it the 8th largest quota holding country at the IMF," Information & Broadcasting Minister Ambika Soni told reporters after the cabinet meet.

Significantly, India's gain in terms of quota share is the 7th largest in 14th round of quota review.

In absolute terms, New Delhi's quota will increase from 5,821.5 million special drawing rights to SDR 13,114.4 million.

When the Fourteenth General Review of Quotas becomes effective, Soni said it would result in a major realignment of quota shares among members to better reflect the global realities.

All the BRIC (Brazil, Russia, India and China) countries would now be among the ten largest quota shareholders at the IMF.

Emerging nations, including India, want greater say in the IMF in line with their increased economic clout.

The United States and Europe together accounts for a significant share in the IMF. — PTI