The Confederation of Indian Industry (CII) on Saturday has reduced the GDP growth estimate to 7.4-7.8% from its earlier estimate of 8.3-8.6%. CII, at its special national council meeting, asserted that high interest rates at home and the credit squeeze abroad could temporarily pull down the investment rate and have an impact on GDP growth.
CII said, ?One key concern is that the sources of funding for capacity expansions could temporarily dry up, leading to some slowdown in the pace of investment growth. In the current situation of heightened uncertainty, it has become hazardous to take a call on how GDP growth will be impacted. On the face of it, India is relatively insulated from a global downturn, given that domestic spending forms a much higher proportion of GDP compared to exports. However, in the last few years, there has been increasing inter-dependence between the Indian and the global economy, through greater flows of trade and investment.?
CII office bearer, who was present at Saturday?s meeting told FE, there was an unanimity among members though there was a slowdown, Indian banks and insurance sector are in a comfortable and sound position unlike some countries. ?The Indian banks and insurance sector are well protected and insulated and there was nothing to worry or be panic about it,? an office bearer said. Bajaj Group chief Rahul Bajaj, Godrej Group chief Adi Godrej, L&T chairman AM Naik were among few who were quite vocal at the meeting.
CII national council acknowledged various measures so far taken by the Centre and the RBI. However, national council members noted that while the RBI has taken timely steps to improve liquidity and lower interest rates, the current demand for liquidity in the system and the resultant ineffectiveness of repo rate cuts to culminate into lower lending along with future demand for liquidity to meet short-term credit needs calls for greater domestic liquidity and lower interest rates.
Moreover, CII national council noted that the impact of the global financial crisis on Indian economy has been felt across all industry sectors. While manufacturing, infrastructure, MSMEs, exports are expected to be the worst hit, the spread of decline in confidence, coupled with liquidity and non-availability of credit, will impact the overall growth outlook for India. The impact of the global financial crisis will be severe and prolonged in India if investments get affected as India?s growth is primarily investment led.