There are no fears of a liquidity crunch: Chidambaram

Baramati, Mar 12 (UNI) Inflation is well under control at less than five per cent and there is no fear of a liquidity crunch, said Union Finance Minister P Chidambaram here last night.

Addressing journalists here, he said that the RBI has assured that funds will be available for all good projects and there is no need for worry on this count.

A liquidity crunch is, anyway, an indication of increased demand and the crunch, if any, had eased in the last two weeks, Mr Chidambaram said. There will be a tightening of liquidity around March 15, he said, adding that it will be because of payment of advance taxes during that time.

In response to a query on how he proposed to encourage micro-finance institutions, Mr Chidambaram said the RBI had already issued a circular recognising banking correspondents and banking agents for delivering credit to farmers.

A legislation on this is being finalised presently, he announced, adding that regulation would be minimal and only to ensure that finance ultimately reaches the farmer.

Denying that there was any regulated lending prescribed for the priority sector, Mr Chidambaram said if agricultural growth was to reach four per cent to propel an eight per cent plus GDP growth, then there was a need to lend a helping hand to farmers and devise ways to direct credit flow to them. This should be at a price he can be comfortable with, he said.

He also denied that there was any move to impose any restrictions on co-operative banks, saying that the RBI was not regulating agricultural co-operatives. It is NABARD as a refinance organisation that has a regulatory control over them. The RBI steps in only if the co-operative fails in meeting prudential norms, he clarified.

When asked if banks would be allowed into commodities trading, Mr Chidambaram said that first the RBI had to be involved if banks were to be allowed commodities trading. Presently, the regulator has no powers and the Forward Contract Regulation Act (FCRA) itself is very skeletal. We need to amend the Act and I can't give you a timeframe as to when banks will be allowed into commodities trading, he said.

On contract farming, the Union Finance Minister said that it by no means takes away the special relationship between the tiller and the land he tills, but prior to the plough touching the land and post-harvest, there is a huge opportunity for corporates to invest and help farmers in technology, marketing, storage and logistics.

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