The Hindu Business Line : Credit Policy

The RBI Governor has disappointed a few by deciding to keep the basic rates pertaining to credit intact. The majority of market players expected a rate cut in line with the recent US Fed cut, but the Government seems to have opted for sending optimistic signals, despite negative cues from the US and some other economies.

The decision of the government to rein in inflation to five per cent with a satisfactory projection of GDP indicates normal growth expectations. The growth retardation in the infrastructure sector is disappointing, especially when there are barely 15 months to go for the general elections. The Budget, to be presented next month, faces many strictures, being a pre-election Budget. It should contain many sops to industry too, quite contrary to the economic principles, to present a ‘pro-poor’ picture.

The slowdown noted in the credit offtake should be a cause for concern. But here, again, it is astonishing to note that the RBI has not considered interest rate cuts or similar measures. IPOs and ADRs might have helped the corporate sector raise funds, but the non-corporate sector has no such options and the reasons for poor credit off-take in these sectors should be understood and the necessary correction initiated.

The volatility of the stock market in the recent past should be seen against the backdrop of such negative aspects. Though the market moves alone do not reflect the economy as a whole, it seems that some problems are on the way.

C. P. Velayudhan Nair Kochi

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