CII for interest rate cut

NEW DELHI: A day after the RBI announced its Mid Term Review of the Monetary Policy, CII has come out with a set of recommendations aimed at bringing the focus back on growth.
 
Mr Chandrajit Banerjee, Director General, CII, commenting on the current situation in the economy, said that there are five symptomatic issues, which are the crux of the problem facing Indian economy today. These are: (1) Inadequate liquidity, (2) High cost of capital, (3) Non- availability of credit, (4) Instability in foreign exchange markets and (5) Low levels of confidence. All these five are interlinked. We are already seeing the impact of these on the manufacturing sector and soon we are likely to see its impact on other sectors too, particularly in the services sector.
 
The CII release went on to say that in the last two weeks in a display of great agility and responsiveness the Government and the RBI have brought in a number of measures to infuse greater liquidity into the system, cut repo rate and checked the slipping rupee. All of these were in CII’s suggestions to bolster the economy and are very welcome initiatives. However, to bring the focus back on growth and instill the lost confidence in the economic system, CII has come out with a set of 11 suggestions, in the broad areas of liquidity and interest rates; foreign exchange management; credit flow and impetus to growth; and communication aimed at building confidence.
 
The CII recommendations:
 
In the area of Domestic liquidity and interest rates, it is necessary to further reduce repo rate by at least 50 bps and in CRR by 150 bps to ensure adequate liquidity and reasonable cost of funding. In addition, there is requirement for provisioning of liquidity to Mutual Fund and NBFC sectors, to enable orderly operation of financial markets. This is very important in view of the redemption pressure created risk that may be faced, particularly by the Mutual Fund sector, said the release. In addition, CII has also asked for the government to guarantee all bank deposits for a two-year period, to maintain depositor confidence in the banking sector.
 
Expressing deep concern about the steadily depreciating Rupee against the US Dollar, CII has made four specific suggestions, which include focused exchange rate management to prevent volatility without reducing rupee liquidity; relaxation of FDI norms to attract foreign capital; utilization of foreign exchange reserves for meeting critical foreign currency needs; and removal of the cap on NRE and FCNR(B) deposits.
 
The key problem that industry is facing today is the drying up of credit in the system, said the release, and for this purpose, CII has suggested a special corpus for lending to SMEs; in addition to speedy release of government funds for various projects to ensure timely implementation and generation of economic activity; and fast tracking of all infrastructure projects to spur investments and growth through inter-sectoral linkages.
 
Even while the fundamentals of the economy are strong at the present moment, the mood in industry and markets have swung downwards owing to a huge deficiency in confidence. Therefore, CII has particularly stressed on the need for building confidence in the system, through a joint effort of the Government, the RBI and Industry.