MADURAI: The Tamil Nadu Chamber of Commerce has said the RBI’s sixth consecutive repo rate hike of 0.25% announced on Wednesday will affect trade and industry, particularly MSMEs, and industrial investment.
In a release, Dr N Jegatheesan, president, TN Chamber of Commerce and Industries, said due to political tensions in international markets and devaluation of Indian rupee against the US dollar, trade deficit has widened considerably. Inflation too is rising and is still above the RBI's target. India's economic growth has also been hit by global economic slowdown. Trade and industries sector is shocked by the continuous repo rate hike by the RBI, particularly when crude oil prices have seen a sharp dip in prices in the international market. The country’s GDP growth target has also been lowered compared to the original target.
The repo rate hike has resulted in increase in interest rate on home loans, auto loans, personal and gold loans, and the monthly EMI outgo will be much higher. Real estate, construction and automobile sectors will be badly hit. Trade and industry, which is already reeling under severe financial crisis, rising prices of essential commodities, abnormal fuel price hike, unemployment, and inflation have pushed the MSME sector and general public to a financial crisis. With the interest rate on education loans hiked by almost 2.5% this year alone, the EMI amount to be paid on loans has gone up drastically.
Most trade and industrial establishments have already been hit by increase in cost of production. With the new repo rate hike, interest rate on loans given by banks will go up. This will increase the cost of production and reduce liquidity which will reduce the purchasing capacity and exacerbate the problems of trade and industrial sector.
While the RBI has used all its weapons in the past to control inflation, its actions should not in any way stifle the economic growth stimulus.
To control inflation, the union govt should reform the trade and industrial policy to increase investment in the sector and increase productivity and create more employment opportunities. It should also adopt new strategies in agriculture sector to improve productivity, take steps to ensure agricultural produce is not wasted and ensure growth in education and healthcare sector. The government must improve administrative efficiency to ensure economic growth of the country.