Tight Liquidity Conditions Should Not Affect Festival Demand: ASCON
Dwindling liquidity should not affect festival demand across key sectors, said leaders of Indian industry representing diverse industrial segments. Consumer sentiments should not get impacted by the current condition, especially when it comes to offtake of passenger vehicles, household goods and ancillary sectors despite the onset of the festival season, noted participants at a meeting conducted by the Confederation of Indian Industry (CII).
The participants were office bearers of industry associations from across sectors such as automobiles, dealerships, electrical equipment, power sector, Fans, Pumps, SMEs, Infrastructure and others. The industry bodies are part of CII’s Associations Council (ASCON) which has a membership of about 260 industry associations across sectors and across scale.
The RBI needs to work in consultation with all segments of the industry to ensure that there is sufficient liquidity in the system. The current situation of tight liquidity is of concern from consumption and investments point of view, said CII in the release.
With capacity utilization going up to 80% and even more, this is the right time for higher investments. However, this is constrained due to liquidity considerations and higher cost of credit, the release added.
In the auto sector, representatives pointed out that poor market sentiments are impacting sales along with issues such as rising petrol prices.
Another issue brought up was the cautious approach of non-banking financial companies regarding new lending which is due to their lack of liquidity. This, in turn, is leading to higher interest costs for industry.
MSME sector, in particular, is impacted by the additional requirement for collateral and higher cost of credit which is leading to tighter funding. Working capital is under pressure and cash flow is getting affected. Most enterprises are operating with thinner margins, said the participants.
Lack of adequate liquidity and poor consumer sentiments have also led to the bottom 10-15% of consumers dropping out of the market.
The ASCON meeting reiterated that there is need to tackle the liquidity conditions in the Indian financial sector in order to ensure that the process of stable and faster growth remains intact.