Mumbai, Oct 9 (UNI) To tide over the current global economic crisis, Reserve Bank of India (RBI) will need to inject Rs one lakh crore and cut credit reserve ratio (CRR) by another 50 bps, recommended a study by Confederation of Indian Industries (CII).
The five-point CII recommendation points out that while the 50 bps CRR cut by the RBI announced on October six is welcome, ''what is required is a deeper cut in the order of another 150 bps to inject the necessary liquidity in the system. What the system needs today is about Rs 1,00,000 crore of liquidity to be pumped in, and the CRR should be accompanied by other measures such as immediate unwinding of MSS bonds held by RBI.'' With inflationary trend swinging downward, the RBI may consider an interest rate cut. A cut in the repo rates by 50 bps would be very effective at this stage, suggested the study.
An exclusive fund from RBI's foreign exchange reserves of USD 7-8 billion should also be created to invite investments in Indian securities and create liquidity in the capital market.
''This will have the benefit of creating a floor for asset prices and preventing further depreciation of the rupee. This fund will ultimately make a profit as Indian asset prices are likely to increase in the longer term,'' it notes.
Raising the interest rate on NRI deposits on lines of India Millennium Deposits or the Resurgent India Bonds could enhance the dollar inflow and help check the slide of the rupee.
Easing up the external commercial borrowings (ECB) caps for companies in the infrastructure sector (including mining, exploration and refining sectors under infrastructure) and allowing access to foreign debt will allow some large projects to get funds at slightly better terms than the current cost in India, as the Indian cost of funds is turning many projects unviable, observed the study.
''All the projects with cost in excess of USD 500 million should be allowed to borrow upto USD 150 million for meeting capital expenditures. Import of services upto USD 100 million in a year should be allowed using ECBs including those related to R&D, new product development, license fees and technology fees,'' it said.
According to the study, the maximum spreads currently allowed does not match up to the market rate at which loans are available and has recommended the RBI to take into account the recent hardening of London Interbank Offered Rate (LIBOR) and increase the spreads accordingly.
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