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India’s growth of 5.3 percent intensifies rate cut demands

The Indian economy logged 5.3 percent growth in the second quarter of this fiscal, against 5.7 percent in the first quarter, making ground for the central bank to ease interest rates and the government to push for reforms.

Even though the 5.3-percent growth came as a pleasant surprise to some stakeholders who were anticipating a slightly lower rate of expansion, the manufacturing growth of a mere 0.1 percent came as a disappointment, as per Central Statistics Office (CSO) data.

The government has been nudging the Reserve Bank of India (RBI) to cut interest rates and ease the flow of money to the industry — an advise that is expected to be taken seriously when Governor Raghuram Rajan reviews the monetary policy Tuesday.

This is also because the country’s annual retail inflation has eased to a record low of 5.52 percent in October, from 10.17 percent during the like month of last year, even as the wholesale inflation dipped to 1.77 percent from 2.38 percent.

At the same time, factory output, measured by the Index of Industrial Production (IIP), grew by just 2.5 percent during September over the corresponding month of the previous year, pointing towards the persistent weakness in spurring manufacturing activity.

Finance Minister Arun Jaitley is scheduled to meet with Rajan a day ahead of the policy review, in what is widely anticipated as an opportunity for the government to push the case of India Inc that has been asking for more funds at lower costs.

Confederation of Indian Industry (CII) said it was hopeful that further government-backed reforms and new a impetus by the central bank will allow the industry to gain financial strength to come back to a robust growth driven expansion mode.

“The RBI should review its status quoist approach and move towards paring interest rates in its forthcoming monetary policy to give a fillip to recovery, both through higher consumption spending and opening up channels for investment,” CII director general Chandrajit Banerjee said.

As per data on gross domestic product (GDP) released Friday, the economic growth during the second quarter was led by the output of social services (up 9.6 percent), financial sector (up 9.5 percent) and utilities like electricity and water (up 8.7 percent).

The farm sector also registered an impressive growth of 3.2 percent.

While lamenting on a lower economic expansion for the second quarter from the first, industry body Ficci (Federation of Indian Chambers of Commerce and Industry) cited the subdued growth in manufacturing as a major cause of concern.

“Important element of the cost structure for manufacturing is interest rates and given the current inflation situation RBI should ease the monetary policy stance as this would give a boost to investment sentiment,” said Ficci president Sidharth Birla.

“We look forward to further action on all the pending reforms including early introduction of goods and services tax, changes to the land acquisition act and further reforms in labour laws.” (IANS)

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