By IANS,
New Delhi: The rising cost of capital due to monetary tightening measures by the country’s central bank will hit the manufacturing sector’s growth in the fourth quarter of fiscal 2010-11, an industry survey has revealed.
Over 77 percent of the respondents in a survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) felt that the growth of the manufacturing sector will slow further in the fourth quarter of the current fiscal that ends March 31.
The manufacturing sector’s growth declined sharply to 5.6 percent in the third quarter of the fiscal from 9.8 percent in the previous quarter.
The latest quarterly survey shows a significant fall in the overall business sentiment and expectations of the manufacturing sector in the fourth quarter as compared to the previous two quarters, FICCI, among the country’s top three industry associations, said in a statement Tuesday.
The Reserve Bank of India (RBI) hiked repo and reverse repo rates by 25 basis points in its quarterly monetary policy review in January. The central bank had hiked its policy rates in January for the seventh time in a year in a bid to control inflation.
The central bank’s short-term lending rate, also called the repo rate, now stands at 6.5 percent and the short-term borrowing rate or reverse repo rate is 5.5 percent.
As a result of the RBI’s monetary tightening measures, most banks have raised their lending and deposit rates. The prime lending rates of commercial banks in India are in the range of 12.75 percent and 13 percent.
“With inflation moderating in recent weeks, FICCI has urged the RBI not to increase rates any further as it would directly impact the capacity additions and growth of the manufacturing sector,” the industry association said.
The survey points out that the most important factor for moderation in growth was the rise in the cost of capital due to monetary tightening measures introduced by the RBI.
Over 34 percent of the respondents said their cost of borrowing has increased significantly in the last 2-3 months.
About 43 percent of the respondents felt that the hike in policy rates had a moderate impact on their cost of borrowing as compared with the third quarter, when 13 percent of the respondents stated that their cost of borrowing had increased significantly.