New Delhi, Apr 20 (UNI) A forward looking monetary policy which can absorb and withstand implications of economic slowdown is the need of the hour as the global turbulence is shaking investor confidence in the Indian market, an industry body said.
In a note submitted to the Reserve Bank of India (RBI) Governor, the Assocham President Venugopal N Dhoot has proposed that the RBI should increase surveillance of entire financial system so that a crisis situation does not arise.
The Chamber Chief has further suggested that Indian companies should be permitted to hike their overseas investment limit by 250 per cent from current level of 200 per cent of their total networth.
''Since, the domestic companies are doing reasonably well, India Inc should be permitted to hike their overseas investment by 250 per cent of their total networth so that their capital realization is used for capacities expansion with stronger currencies,'' Mr Dhoot said.
He added that the capital inflows should be diverted towards the infrastructure investment as this would help in solving the problem of access liquidity on account of capital flows and help in removing the infrastructure constraints.
''The current investment boom in Indian economy can be hampered because of high borrowing costs particularly for small and medium enterprises and therefore, interest cut has become absolutely essential to ensure that SMEs contribution is enhanced towards domestic production and equally to exports, which would be possible with extension of liquidity to these enterprises particularly at lower borrowing costs,'' he said.
The chamber also recommended that RBI should consider increasing the overall ceiling from 22 billion dollars and raising the company wise ceiling of 20 million dollars towards the domestic use of funds raised through the external commercial borrowing routes.
The tightening of end-use norms for using the funds raised through this route should also be eased, it added.
''Adequate liquidity infusion at appropriate time during crisis in the financial markets is a key element to avoid the situation of major turbulences as witnessed in the stock market in the last few months,'' a statement from the industry body said.
The RBI should relax the norms relating to the market intermediaries to avoid the liquidity crunch. In addition, the bank should be prepared for the withdrawal of liquidity from Indian economy as the conditions of recession in world economy have become ripped, the statement added.
Assocham also holds that India as compared to other countries has advantageous position as a large part of its food consumption is met by domestic production.
''The only exception is edible oil in which the country is dependent on imports. Also the rise in the prices of pulses is a disturbing trend as they are unique to the food basket and the time source of proteins and are not grown in larger quantities anywhere else. Hence, greater investments and technological inputs need to be diverted in production of pulses,'' the industry body said.
The Research and development, especially catering to the needs of Indian food basket should be promoted. Appropriate policy measures need to be taken to reduce the inefficiencies in the supply chain system which contributes in the rising prices,'' it added.
''The Government should promote organised retail, at least at the domestic level and adequate credit support should be given to sectors like food processing, logistics, transport, cold storage and warehousing. The ECB shall be further raised in case of food processing companies to reduce their effective borrowing cost,'' the statement added.
The chamber further said though it is essential to maintain inflation under the tolerance level, the Government should also ensure that the benefit of higher prices for the agriculture commodities should reach farmers, which in turn would lead to more consumption in rural areas.
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