RBI should give priority treatment to SMEs

New Delhi, Mar 17 (UNI) Priority treatment should be meted out to agri-business and Small and Medium Enterprises (SMEs), the Associated Chambers of Commerce and Industry (ASSOCHAM) said today, while urging the Reserve Bank of India (RBI) to adopt a measured approach towards normalisation of interest rates.

ASSOCHAM has made these suggestions in line with budget proposals for the fiscal 2006-07, in its coming Review of Monetary and Credit Policy for the same period by the Central bank.

''The premier bank should also evolve special financial schemes to provide affordable and timely credit to sectors like agriculture and agri-business, village electricity scheme, SMEs and tiny industries, micro&self-help groups, rural housing and infrastructure development,'' ASSOCHAM President Anil K Agarwal said in a detailed representation submitted to the Governor of RBI.

The Chamber pointed out that the RBI, in its Credit Policy, should lay down a regulatory framework of lending to farmers and rural dwellers by commercial banks, for which the lending norms should be stringent enough to check misuse of subsidised financing.

In addition, a supportive environment should encourage new investments in the core sector, particularly in the neglected areas of infrastructure development and resource flow, including long-term funding to productive and green field projects, should also be enhanced, the Chamber said.

In order to achieve macro-economic stability, there is a need to adopt a measured approach towards modernisation of interest rates. High credit off-take, trade deficit, incipient inflationary pressures, interest rate hikes by the US Fed&ECB, suggest that the RBI would maintain a tightening bias, Mr Agarwal said.

While high commodity prices, particularly crude oil have created supply side inflationary pressures, fiscal and monetary measures have also been able to contain inflationary expectations to a large extent.

However, these measures should be further enhanced, as with demand remaining strong in the domestic economy, return of pricing powers with manufacturers could result in inflation going forward.

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