Core manufacturing sector’s contribution to GDP growth is important for inclusive growth, according to the Reserve Bank of India’s Deputy Governor H. R. Khan.

“Growth in the manufacturing sector, which contributes around 15-16 per cent to our GDP, is stagnating. For inclusive growth, the manufacturing sector must contribute about 25 per cent to the GDP with an appropriate rural and urban mix,” said Khan at the inauguration of the 999th branch of the private lender Federal Bank.

According to the Deputy Governor, liquidity deficit is among the seven Ls (leadership, land, learning, labour, legal, linkage, liquidity deficits) and is most important to revive the sector.

Since, initial public offerings (IPOs) are drying up and the corporate debt market is not developed, the manufacturing sector must receive liquidity support from banks. In this context Khan said the quote of noted American author Mark Twain, “A banker lends you his umbrella when it’s sunny and wants it back when it rains,” must be proved wrong.

To improve liquidity in the system, the RBI initiated open market operations last year and reduced the SLR to 23 per cent in the first quarter review of the monetary policy.

(This article was published on August 10, 2012)
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