CII's recipe for bailing out India Inc from liquidity crunch

New Delhi, Oct 12 (UNI) The Confederation of Indian Industry (CII) today suggested a slew of measures to get the Indian Industry out of the throes of liquidity crunch, including setting up of a Special Purpose Vehicle (SPV) for meeting the financing needs of the small scale industries, removing the cap on the NRE and FCNR (B) deposits, and easing Foreign Direct Investment (FDI) norms.

The CII also suggested that the Oil Marketing Companies (OMCs) be allowed to collect dollars by re-encashing the oil bonds with them.

This will help better utilisation of Foreign Exchange Reserves, which are in the range of 300 billion dollars. The ability of the OMCs to get dollars in lieu of oil bonds is tantamount to monetising the oil bonds.

The CII said the prime victim of the liquidity crunch are Small and Medium Enterprises (SMEs) and recommended setting up of a corpus to bailout this sector.

The setting up of the SPV will ensure that credit will be available to the SMEs at the Prime Lending Rate (PLR).

Paradoxically, it is big business which is able to avail credit at PLR. Large corporates are the ones who have several other means of meeting their funding requirements, such as External Commercial Borrowings (ECB) facility, and raising money from the stock markets.

The CII suggested the need to provide special liquidity lines to banks and NBFCs, that are currently not able to avail funds under the Liquidity Adjustment Facility (LAF) as they do not have adequate government securities. ''This would pre-empt any possibility of bank failures that have been seen in the United States,'' the CII said.

The Confederation argued for reduction in repo rate, over and above the government's decision to cut Cash Reserve Ratio (CRR) by 1.5 percentage points in two successive moves. The hefty cut in the CRR would result in pumping liquidity in the financial system to the extent of Rs 60,000 crore.

But, the CII argued that Indian Industry was still faced with serious liquidity problems and there was akso the need for reducing interest rates.

UNI SG/GS RL NS1732