The Hindu Business Line : Monetary Policy

The Indian economy is not leveraged as much as that of the other developed economies and it is the supply-side dynamics that is contributing to the double-digit inflation.

Some even argue that the central bank’s effort may further accentuate the problems caused by supply-side dynamics due to the capacity addition being delayed mainly due to the steep increase in funding costs.

The policy initiatives of the 1990s have dismantled the long-term funding institutions, as a result of which India Inc must look at the global markets for raising long-term funds.

This will affect the economy as planned capacity additions will not take place. Policy-makers have failed to acknowledge and correct this.

At the other end of the spectrum, the needy do not have any access to institutional funds. Attempts to eliminate the usurious rates charged by the middleman have failed. With the so-called growth in bank credit being fuelled by indiscriminate lending to the salaried and self-employed, it is repaying time for these institutions, with even the central bank taking special interest in these advances.

In the last three years, the housing sector saw a robust growth and provided the much-needed overall growth in GDP. Attempts by the central bank to chase inflation will deprive several people of the chance of owning a home during the lifetime. Will the government intervene?

V. Balakrishnan e-mail

More Stories on : Letters | Credit Policy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Preoccupation with subsidies

AGMs relevant?

Commodities Transaction Tax — Why it could lead to greater volatility

Will the IMF sell gold?

Honesty and political survival are ‘incompatible’

Monetary Policy