Defending the RBI’s move, the government said that the decisions to hike key rates on Tuesday would not affect investment, as is being alleged. The government said that it would not hurt growth and investment demand. However, they have found few takers for this proposition. Most analysts and bankers are of the opposite view.

Trying to ease the growing tension, the finance ministry, said in a statement, "The objective of the RBI is to moderate and manage aggregate demand. The intention is to achieve the objective while ensuring that the prospects for overall economic growth remain positive."

The central bank had on Tuesday hiked two of its key rates by 50 basis points. It had increased the repo rate, which is the rate at which RBI lends to commercial banks in the short term from 8 per cent to 8.50 per cent. This was the second revision in the repo rate in less than a fortnight. It also hiked the cash reserve ratio (CRR), which determines the share of deposits that banks must hold in reserves, to 8.75 per cent from 8.25 per cent, in two phases. The CRR had been hiked only last month.

The RBI had explained its motive behind the move was to reduce demand, in order to finally check the ever increasing rate of inflation. Due to the high global crude oil prices last week, the country has seen the worst form of inflation in 13 years.

However, most of the experts and bankers are of the view that this dual hike in interest rates would lead to banks increasing their lending rates across the board. There is expectation of commercial banks hiking interest rates for all kinds of loans, including corporate loans. This, the experts believe will severely impact investment in new projects and hence, would hurt growth.