Tight monetary policy will hit growth revival scenario

Unsettled global economic outlook and tight monetary stance by RBI will hit investments and growth revival process in the country, President, PHD Chamber of Commerce and Industry (PHDCCI), Suman Jyoti Khaitan said Tuesday. 

Reacting to increased the policy repo rate, Khaitan said, "The cost of reducing inflation has been very high for the Indian economy and hawkish monetary policy has not been able to tackle inflation reasonably well, in turn retarding economic growth by making borrowing dearer each day."

The Reserve Bank of India (RBI) Tuesday increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.5 percent to 7.75 percent. CRR has been kept unchanged at 4 percent of net demand and time liability (NDTL) and reduced the marginal standing facility (MSF) rate by 25 basis points from 9 percent to 8.75 percent with immediate effect. Increased the liquidity provided through term repos of 7-day and 14-day tenor from 0.25 percent of NDTL of the banking system to 0.5 percent with immediate effect.

"Inflation in India can be tackled only by easing supply side constraints and improving infrastructure at a rapid pace, which can lead to an overall development in the economy, going forward," said Khiatan.

The government must enhance public investments in infrastructure sector especially the agriculture infrastructure in terms of supply side infrastructure i.e. farm gate to consumer doorstep supply chain management, which could effectively tackle the challenge of inflation.

However, RBI move to increase the liquidity provided through term repos of 7-day and 14-day tenor from 0.25 percent of NDTL of the banking system to 0.5 percent with immediate effect will provide some relief to the banking system in terms of additional liquidity, he added.