Finance minister P. Chidambaram (centre) with CII president K.V. Kamath (right) and CII economic policy council chairman R. Seshasayee (left) in New Delhi on Tuesday. Picture by Ramakant Kushwaha

New Delhi, Aug. 26: Industry leaders today had a brainstorming session on the economy with finance minister P. Chidambaram where they expressed fears of a possible slowdown because of higher costs and rising interest rates.

They said rising interest rates could hurt new investments, estimated at $700 billion, or Rs 2,800,000 crore, over the next three years. The interaction was organised by the Confederation of Indian Industry (CII).

According to K.V. Kamath, president of the CII, “While existing investments in the pipeline are being adhered to, projects which are at a concept stage may remain on the backburner.”

Kamath, who is also the chief executive officer and managing director of ICICI Bank, said he did not see any easing of monetary tightening by the Reserve Bank of India (RBI) so long as high inflation persists. The RBI’s key lending rate is at a seven-year high of 9 per cent as the government seeks to contain inflation which has touched 12.63 per cent on the back of higher fuel, metals and manufactured product prices.

However, Chidambaram told the leaders to “look at (the situation) very positively. An 8-9 per cent growth is here to stay for at least the next two years and this is backed by numbers.”

At the closed-door session, the finance minister spoke of an investment rate of 36 per cent which is conducive to an eight-per-cent-plus growth rate in the economy. The minister reportedly told the CEOs that while growth might have slowed down marginally, it was not something delinked from what was happening around the globe.

However, Kamath said the CII would stick with its estimate of around 8-8.5 per cent economic growth this fiscal. “Until we see inflation easing, it will be unrealistic to expect any easing of monetary policy.”

On dismal industrial output performance in the first quarter of this fiscal, Kamath said he would not interpret these numbers as they were inconsistent with what is being invested either at the top level or the bottomline.

Moody’s position

Global credit rating agency Moody’s expects the RBI to further tighten its monetary policy to contain inflation, while projecting moderation in the economic growth rate to 7.6 per cent.

Pointing out that inflationary pressures remain “stubbornly” strong in India despite aggressive monetary tightening by the central bank in recent months, the rating agency said, “The rise in global commodity and food prices is still a major driver of inflation”.

The recent decline in global oil prices, it said, will not help in cooling inflation because the prices of petroleum products in the domestic markets are below international levels.