Inflation effect: India Inc for no hike in RBI rates

Blaming high food prices for the resurgence in wholesale price inflation, India Inc said on Monday the government must ease supply-chain bottlenecks to address this issue and urged the RBI not to hike interest rates in its upcoming monetary policy review.

Costlier onion and other vegetables pushed up inflation for the third month in a row to 6.1 per cent in August, making it difficult for the RBI to cut rate in the monetary policy review due later this week.

"The revival of inflation especially that of food prices, calls for urgent steps to address supply side bottlenecks which have been plaguing the sector," Confederation of Indian Industry director general Chandrajit Banerjee said.

The price of vegetables in general rose by 77.81 per cent making life difficult for the common man.

"The key concern for a long time now is that rise in food prices continues to contribute strongly to overall inflation.

It is, therefore, important that structural factors affecting food inflation are addressed on a priority basis," Federation of Indian Chambers of Commerce and Industry secretary general Didar Singh said.

The high increase in prices was also seen in other essential food items like rice, cereals, egg, meat and fish.

"The jump in food prices has undermined the overall performance of WPI inflation which could have been below 5

per cent if food prices had not escalated.

Government should focus on easing supply chain bottlenecks and make provisions for consumers to buy directly from farmers," president of PHD Chamber of Commerce Suman Jyoti Khaitan said.

The food items became costlier by 18.8 per cent on year on year basis.

"This (inflation) would further affect the prospects of economic growth revival and the corporate sector will continue to bear the brunt of higher growth in input prices," Assocham secretary general D S Rawat said.

New Reserve Bank Governor Raghuram Rajan, who is scheduled to come out with his first credit policy review on September 20, will have to take into account the rising inflation while announcing steps to boost sagging growth.

"The Reserve Bank must ensure that the cost of finance to the end user becomes competitive without any further delay.

The upcoming mid quarter monetary policy review must not resort to interest rate tightening, as that would further push the prices up," Rawat said.

"The rise in inflation should not come in the way of the policy of forthcoming monetary policy on September 20, as it is of utmost importance to revive investor sentiments," Banerjee said.

The inflation was at 5.79 per cent in July and 8.01 per cent in August, 2012.

"While keeping inflation under check has to be a priority, it is imperative that we continue efforts to rekindle investor sentiment and push for higher growth," Singh said.