The Hindu Business Line : Making India Inc more competitive

THE RBI recognises the gradual integration of the Indian economy with the global economy. As conditions of stability ensure healthy growth of the economy, interest rate movements are to be managed in a non-disruptive manner.

The marginal hike in the reverse repo and repo rates by 25 basis points is an indication that the financial system will be kept in readiness so that appropriate measures can be taken as and when necessary.

The policy underlines the need to develop infrastructure to support the growth momentum in the economy. At present, only financial institutions dealing exclusively with infrastructure or export credit are permitted to access external commercial borrowings.

The Review clarifies that Special Purpose Vehicles set up to fund infrastructure projects would be treated as financial institutions tobe eligible to raise ECBs. This will make more funds available to the infrastructure sector, which is crucial to economic growth.

There is good news for the textile sector as well. After the abolition of the quota system in January, textile companies have a great opportunity to capture overseas markets. Substantial credit is being absorbed by this segment for upgradation.

Recognising the export and employment potential of this sector, banks are now allowed by the RBI to issue guarantees or standby letters of credit on the ECBs raised by textile companies.

This initiative will supplement the credit support extended to the sector by domestic banks.

And it will enable Indian textile exporters to become globally competitive as funds can be accessed at international prices for capital investment. Borrowers may have a natural hedge against such foreign currency loans because of their export earnings.

Although there is current account deficit in our external trade, it is comforting to note that it is partially because of the continuing trend of importing capital goods to modernise industry and to add new capacities.

The robust foreign exchange reserve of $143.4 billion is capable of absorbing the current account deficit.

Overall, the policy supports the efforts of Indian companies to become globally competitive.

(The author is Chairman and Managing Director, Union Bank of India, Mumbai.)

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