The Hindu Business Line : Moderation of credit growth essential: Reddy

"Those of us who have gone through the problems of scarcity at some stage, know how valuable it is to have this problem," observed the Governor, addressing the media after announcing the RBI's annual policy.

The annual monetary policy statement for 2006-07 maintained its core stance of containing inflation — the problem of too much money chasing too few goods.

"To bring down inflation and ensure sustained growth, we have to ensure that money supply growth is restricted to 17-17.5 per cent from 20 per cent last year. The credit growth also we would like to bring down from 29.8 per cent last year to 24-25 per cent this year," said Dr Reddy. He was addressing the media after announcing the RBI's annual policy. Dr Reddy said that moderation of credit growth would remove excess demand and ensure stability.

"There are significant capital flows which are far in excess of what we need from the current account deficit side.

These capital flows have to be absorbed in terms of an appropriate investor climate or something will have to be done to ensure that they are consistent with macro-economic stability," he elaborated.

Significant Investment

The forex reserves have exceeded $200 billion with an inflow of $47.6 billion in the last fiscal alone. T

he Governor emphasised that there was significant investment taking place in India and a lot of supply was coming in.

While demand had also grown fast and capacities were being utilised, the addition to capacity has come with a lag.

"Our issue is to manage the transition. While managing the transition, we cannot let inflation to go out of hands as it will increase societal burdens," he said. About whether external commercial borrowings were a concern in terms of inflows, Dr Reddy said the central bank was in continuous dialogue with the Government "ECBs should be actively managed. We would prefer non-debt-creating flows."

Higher Growth

"In the last few years, the addition to debt has been less than the addition to reserves. The Government and RBI have continued to contain short-term debt within permissible limit," he added. On the trade-off between growth and inflation, Dr Reddy said, "There is nothing like that. If you want sustainable growth, you have to reduce uncertainties on account of prices."

The Governor said there was interest in rupee-trading and that the central bank would devise safeguards for the Non-Deliverable Forward Market to take place in India as well.

"Looking forward we are getting prepared for a more effective integration with global economy to ensure higher growth performance with stability to provide employment to many," he surmised.

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