Addressing the annual general meeting of FICCI, Finance Minister P Chidambaram also asked the industry to look into the reasons for poor performance of certain sectors like food products, paper, leather, chemical, basic metals and machinery.
He advised industry chambers like FICCI to set up a knowledge cell of outstanding experts to develop innovative ideas for the industry.
While, Indian industry has got certain degree of mastery over acquiring technology, products and raising financial resources, it has yet to learn how to respond to the changing market behaviour, he said.
The finance minister said while contribution of primary and fuel items to inflation has declined of late, certain manufacturing items are leading to its rise.
"It is because demand is so high... also because there are supply side constraints and demand is outstripping supply. This gives you enough headroom to inflate prices," he said.
However, this is very short term view. "(With) the economy growing at a clipping pace, to look at these opportunities for profit alone is a short term view," he added.
This way, core inflation would get entrenched at a certain rate, which would eventually push up interest rates and costs to the disadvantage of the industry in the long run, Chidambaram said.
To a question from the floor on increase in risk weightage to housing and real estate sector by RBI, he said the central bank took the step because credit had been growing at over 30 per cent for 20 months now.
Credit to housing sector had grown much higher at 54 per cent and commercial real estate at over 100 per cent, he said. "If the credit moderates for these sectors, interest rates will come down, but for the moment they are where they are," he said.
On segments showing poor performance in the economy, he said it may be because of rise in input costs, especially in wheat, milk and sugar for food products.
He was surprised at the poor performance of these sectors, when per capita consumption and per capita income was growing in the country.
"I would urge FICCI to closely look at the issue and find out why these sectors are not growing, especially when the economy is growing close to nine per cent and the core sector IIP is also showing 50 per cent growth year-on-year," he said.
He said inadequate investment is still a constraint that holds back the economy from sustaining higher growth rate. "If infrastructure is a constraint, it is because investment in infrastructure is a constraint... Even if we get our policy constraints right in areas like mining and coal sectors where is the money? Money is the biggest constraint."
On some industrialists' demand for swapping rupee loans with external commercial borrowings, Chidambaram said he could not allow external debt to rise beyond a point.
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