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Confederation of Indian Industries on Tuesday warned that rising interest rates may hurt new investments even though resources to the tune of $700 billion are in the pipeline over the next three years.
"While the existing investments in the pipelines were being adhered to... May be, newer projects which were at concept stage, which were at the backburner may not come to the front burner," CII President K V Kamath told reporters after a meeting of industry leaders with Finance Minister P Chidambaram.
Kamath said investors were concerned whether high inflation would mean that consumer demand would slowdown, whether high interest would mean that consumers could afford to buy or purchase what they wanted to purchase.
The CII president said he did not see any easing of monetary tightening so long as high inflation persists.
"If inflation is an issue...till we see inflation easing, then it would be unrealistic to expect any easing of monetary policy," Kamath, who is CEO and MD of ICICI Bank [Get Quote], said.
He, however, quoted the finance minister as assuring the industry that they 'should look at it very positively that an 8-9 per cent growth is here to stay and this is backed by numbers.'
Kamath said Chidambaram reported figures from CMIE, which talks of a monthly accretion to new projects to the tune of Rs 1500-1700 billion that would be around $40 billion, which on an annualised basis would be $450-480 billion.
"Now this should augur very well if all these projects come to the front burner," he added. Kamath said the industry outlined the constraints like falling demand, high interest rates and high commodity prices impacting the cost of production.
However, he said real interest rates are still not very high.
The CII president said the chamber would stay with its estimates of around 8-8.5 per cent economic growth this fiscal.
On dismal industrial output performance in the first quarter of this fiscal, he said he would not interpret these numbers as they are inconsistent with what is being invested either at the top level or the bottomline.
Kamath said the finance minister instilled confidence in the industry and asked them to continue with their investment plans.
According to the CII President, Chidambaram talked of investment rate of 36 per cent in the country which is conducive for an eight per cent plus growth rate in the economy.
That would sustain for the next few years and that is something the industry sector should keep in mind while planning the future, the finance minister is reported to have said.
While growth might have slowed down marginally, this is not something that is delinked from what is happening around the globe, the finance minister said, according to Kamath.
Moderation in growth has certain linkages with what is happening around the globe and as the global situation corrects we should see our own growth rate going up, Kamath quoted the finance minister as saying.
CII members said if the economic environment remains buoyant, the industry would continue with their investment plans, according to Kamath.
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