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GDP estimates highlight concerns on economy Print E-mail
Written by Vijay   
Tuesday, 03 March 2009
RBI should reduce interest rates: CII

New Delhi : The GDP estimates for the third quarter released by CSO indicate that the economy is going through a difficult period. “The estimates highlight our concerns on the economy,” said Mr. Chandrajit Banerjee, Director General, CII. GDP growth has declined to 5.3 per cent in the quarter ending December 2008 compared to the growth rate of 7.8 per cent during the first half of 2008-09. For the CSO’s advance estimate of 7.1 per cent GDP growth in 2008-09 to be valid, GDP growth would have to accelerate substantially to 7.7 per cent in the fourth quarter.

“CII has been concerned about the sudden downturn in the economy and has made several recommendations for revival,” said Mr. Banerjee. CII’s recommendations include demand creation through speedy implementation of infrastructure projects and further reduction in interest rates.

The performance has been especially weak in agriculture and manufacturing, with these sectors contracting by 2.2% and 0.2% respectively. The slowdown is also apparent in the sub-sector of trade, hotels, transport and communication, which constitutes more than a quarter of GDP. “Going forward, we expect some revival in agricultural growth in the fourth quarter when the rabi crop comes in. This will have a positive impact on rural incomes and drive domestic demand for goods and services”, said Mr. Banerjee.

CII also pointed out that in view of the slowdown in the real sector, the RBI should consider a further reduction in interest rates. “The government has taken several steps to revive the economy and it is time that the RBI followed it up with a reduction in interest rates. Industry is keen to see a 50 basis points reduction in the repo and reverse repo rates,” said Mr. Banerjee. Such a reduction, taking the repo rate to 5.0 per cent and the reverse repo rate to 3.5 per cent, will help off-set the recent hardening of yields in the domestic bond market.

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