No radical steps have been pursued in this credit policy to enhance credit access to the small and medium enterprises. The monetary policy aspires to provide appropriate liquidity to meet credit growth and support investment demand in the economy. It seeks to pursue an interest rate environment that is conducive to maintaining the momentum of growth and macroeconomic and price stability.
Financing costs for a large section of industry have unfortunately not mirrored the drastic decline in interest rates that the economy has witnessed over the last few years.
Urgent steps need to be taken by the Reserve Bank of India to reduce the rigidity in the interest rate structure. A prime lending rate spread of 5.5 per cent plus for small and medium enterprises is impeding investments and employment creation especially in the SSI sector.
The increase in limits for forward contracts booking from 5 per cent to 100 per cent of eligible limit was long awaited by industry and will widen India Inc's ability to manage currency risks. Further steps need to be taken including easing the rigidity in documentation requirements.
Gross domestic product growth rate forecast has been reset at 6.0-6.5 per cent as compared to 6.5-7.0 per cent earlier. This forecast coming against a backdrop of unclear visibility on the economic front, deficient rainfall in some parts of the country and uncertain oil prices is going to be a challenge.
Inflation on a point-to-point basis is forecast to be around 6.5 per cent as against the earlier projection of 5.0 per cent. This coupled with the credit offtake in the economy could put pressure on the fiscal front.
The move to fix ceiling on interest rates on non-resident external deposits is not welcome. A portion of these funds inflow is volatile and needs to be discouraged.
The thrust on improving credit delivery to the agriculture sector is welcome.
The steps to develop the commercial paper market including the proposal to reduce the minimum maturity period from 15 days to 7 days will provide corporates an avenue to raise short-term resources and also broaden the investor base.
The Indian software industry is not going to be materially impacted by this credit policy. Liberalization with respect to booking of forward covers is definitely a welcome step but still lot more needs to be done.
Overall, the credit policy has not been a radical one. The stance of the monetary policy towards supporting credit growth and investment while placing emphasis on price stability is welcome although the RBI should have spelt its monetary stance if inflation were to rise in the future.
