With industrial growth almost at a stand still in April and exports showing contraction for May, it is time the Reserve Bank of India took bold measures to arrest slide in the economy, rather than taking the baby steps, ASSOCHAM President Mr Rajkumar N Dhoot said today.

A day before RBI Governor D Subbarao reviews the credit policy, Dhoot made a strong case for going in for at least 50-100 basis point cut in Repo Rate & a CRR cut of 100 bps so that a strong message is sent to help revive the sagging Indian economy.

“We are at a critical stage. One delayed step or any indecisive move can bound to wreck the industrial and service sectors. There is a case for a big cut in the interest rates to revive demand for industrial products & investments. Several of the  interest sensitive segments like automobile and service sectors like banking and housing are in the grip of slowdown. RBI must  use this opportunity  for bold announcement,” said Dhoot.

He said unlike the Wholesale Price Index (WPI) headline inflation of 7.55 per cent for April, the core inflation for the same month was 5.02, which is much lower than 7.43 per cent in the same month last year.

It is the core inflation, which gets impacted by the interest rates and not the prices of vegetables or food grains or even protein based items.

The year-on-year inflation, based on the WPI figures for May, for food products (manufactured) is down to 5.93 percent as compared 7.85 percent during the corresponding month of the last fiscal. Cotton textiles prices actually dropped by 8.62 per cent (minus) against a huge 28.89 per cent last year, May.

The inflation in manmade fibre was down to mere 0.66 per cent from 10.45 per cent in May, 2011. Similarly, leather and leather products price rise was limited to 3.92 per cent, Mr Dhoot quoted the official data released on Thursday.

The sectors which are interest sensitive like automobile are suffering as the tight monetary policy and the resultant high interest rates are killing demand for passenger cars.

The car sales grew by a mere three per cent in May, the slowest in the last seven months, according to the industry data released recently.

Likewise, demand for housing has more than halved in the last one year. Exports, including those from the employment –oriented sectors have shrunk by over four per cent in May. “At this pace, where is the question of achieving 20 per cent growth in exports in 2012-13, as the target set out by the Commerce Ministry”. 

Interest costs on the companies are leading to bleeding balance-sheets. More and more corporates and knocking at the doors of the banks seeking debt restructuring, vitiating the business environment, including the stock market which has remained shaky, said Dhoot. 

He said the message sent out by the WPI headline inflation is just lopsided. The interest sensitive core inflation is down considerably in the last one year and in the last six months, excepting a few handfuls of exceptions like iron and semis and metals.

Dhoot  also said that most of the global agencies and the domestic think tanks have revised downward the growth prospects for the current fiscal under the impact of global factors like Eurozone crisis and the domestic bottlenecks like delay in the take-offs in regard to several projects.

He said the RBI should come out with a pragmatic policy, especially at a time when the central banks all over the world are working on contingency plans to deal with the unfolding situation in Greece, Spain and other highly vulnerable economies of Europe.

Dhoot said, that while he has faith in the Indian economy, it needs to be protected from both internal and external shocks without delay.