RBI’s mid quarter policy review of the monetary policy for FY’12

Mr. Pradeep Jain, Chairman, Parsvnath Developers Limited and Chairman, Confederation of Real Estate Developers’ Association of India (CREDAI) said, “Yet again, RBI has increased the Repo Rate and Reverse Repo Rate by 25 bps each bringing them to 8.25% and 7.25% respectively. Well, time and again it has been expressed that until and unless steps are taken to improve supply system, this increase by RBI is going to have a minimal effect on inflation. As far as equity markets are concerned, it had already factored in a 25 basis point rate hike. This is 12th time in last 18 months that rates have been increased and it is evident to all that it has not been material in taming inflation to a desired level. We understand that the outlook on inflation is quite disturbing I feel that inflation will remain above the eight per cent mark for the rest of the fiscal year. However, I am confident that this current hike will be the last one for 2011.
While it is abundantly clear that the monetarist approach to quelling inflation has failed to deliver results. Instead of depressing prices, it has suppressed growth. Industrial output growth in July slumped to 3.3 per cent, the lowest in almost two years, accentuating fears that a slowdown is imminent. Capital goods, manufacturing and mining posted a very poor performance indicating weakness in the economy. Such figures were last seen in October 2009. The IIP number was one third of last year’s growth and going forward I feel that the outlook is bleak. The situation is indeed serious as both manufacturing and mining sectors’ growth has dipped significantly as against last year and unless corrective policy actions are taken we may enter the negative territory soon. High interest rates had started impacting factories and going forward RBI should not increase interest rates. The July slowdown was driven by squeeze in demand momentum and may impact GDP growth estimates. The effects of slower growth have also been seen in sales of everything, may be real estate, may be car sales etc.
We would like to request government to improve industrial climate and business environment, stimulate investment and ensure adequate feedstock linkages and development of industry-relevant skills. We are of view that if measures had been taken to kick start production and manufacturing to support supply in market, we might have seen a different scenario altogether. It is now for the Government to take fiscal steps to tackle inflation and promote growth.
While general sentiments in India are that with festive season people tend to go for buying decisions and as far as real estate is concerned we see good buying in the festive season but these rate hikes have made cost of funds expensive for both developers and buyers, and we may not see the buying spree in the coming festive season. Not only this, constant increases in the input costs is also making the business environment very complex across industries.
As real estate developer, we are not left with any choice but to pass on the same to our buyers resulting increase in property prices. Hereby, we request RBI not to increase the rate to any further extent; instead we appeal to RBI to stimulate measures for an improved supply chain management.”