Industry on Tuesday hailed Reserve Bank of India's softening of interest rates in the Credit Policy 2003-04 and hoped it would lead to further cuts in lending rates of banks giving enough incentives to spur industrial production.

The reduction in bank rate and cash reserve ratio by 0.25 percentage points each is expected to translate in further reduction in lending rates of banks which had remained "sticky despite regular reduction in bank rates," president of Federation of Indian Chambers of Commerce and Industry, A C Muthiah said in a statement.

On RBI's expectation of 5-5.50 per cent inflation during this year, FICCI said, "This is an optimal level, which will give industry enough incentive to produce without hurting the consumer."

In a mixed reaction to the policy, the Associated Chambers of Commerce and Industry of India welcomed the measures to improve credit delivery mechanism and continuation of soft interest rate regime, but cautioned that it might not generate the desired growth.  

"While RBI has given special attention to agricultural sector, micro-financing and boosting infrastructure financing, the policy is unlikely to unshackle the economy and generate growth," ASSOCHAM President R K Somany said.

ASSOCHAM said the policy failed to address the high real interest rate, an issue which was of concern to the retired and fixed income people depending on interest rate income.

Reacting to the policy, Planning Commission member N K Singh said, "It is for sustaining growth momentum and it is to sustain the kind of growth manufacturing sector is targeting in future (8-9 per cent)."

Asked if a cut in bank rates would not lead to reduction in interest rates on bank deposits thereby hurting the common man, he said, "You will have to take things in totality. Ultimately the common man will gain from investments and he will gain from growth impluse that the RBI's credit policy is aiming to achieve."

PTI