Comments of Pradeep Jain on RBI's Q1 Monetary Policy Review

Commenting on RBI's first quarter 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 and quite unexpectedly, RBI has increased the Repo Rate and Reverse Repo Rate by 50 bps each bringing them to 8% and 7% 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. This is 11th time in last 17 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. Instead, if measures had been taken to kick start production and manufacturing to support supply in market, we might have seen a different scenario altogether. The move has come as a surprise to us. While we were expecting a moderate hike of 25 BPS but hiking rates by 50 BPS is going to dampen the growth."

Whilst this will make cost of funds expensive for both developers and buyers coupled with constant increases in the input costs making the business environment very complex across industries.

It is pertinent to note that this kind of rate tightening in past 17 months has already resulted in growth moderation during Q1 of FY12. These were visible from deceleration in IIP (index of industrial production) during April-May 2011 and in consumption of cement, steel and automobiles during Q1 of 2011-12. IIP has decelerated to a growth of 5.8% in April and further to 5.6% in May, down from a rapid 13% growth in April 2010 and 15% growth in March 2010 respectively. I feel in the coming months softening in industrial growth as a result of implied input costs. The effects of slower growth have also been seen in sales of everything, may be real estate, may be car sales etc.

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.

Source : Equity Bulls

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