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India Inc welcomes RBI policy, but describes it as 'overcautious'

Written by: Staff
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New Delhi, Apr 18 (UNI) India Inc today welcomed the Reserve Bank of India (RBI) credit policy which left the bank rate, Cash Reserve Ratio (CRR) and reverse repo rate unchanged, even as it described the policy as being ''cautious.'' ''The Annual Policy Statement released by the RBI today, is growth oriented,'' CII President Y C Deveshwar said adding that the growth momentum of the economy has only been given a boost with the policy.

Mr Deveshwar said the Chamber was particularly happy that RBI Governor Y V Reddy had taken cognizance of the inflationary pressures on the economy and hoped that actual inflation would not cross 5.5 per cent in the near future.

The PHD Chamber of Commerce and Industry although welcomed the continuation of the bank rate and repo rate, however, felt that keeping in mind the liquidity crunch, the RBI should have reduced the CRR by 0.50 basic points to improve the liquidity in the system.

PHDCCI Secretary General Bibek Debroy felt that the policy was over cautious and had erred in controlling inflation.

''A more realistic and aggressive policy would have given the desired push to the economic growth to achieve the targetted GDP of 7.5-8 per cent during 2006-07.'' CII also observed that not changing the Repo and the Reverse repo rate would keep the liquidity situation in the market conducive for the growth of the industry. However, RBI could have considered a reduction in the Cash Reserve Ratio, in keeping with the stated objective of the RBI to gradually bring it down to 3 per cent over a period of time, it felt.

The Associated Chambers of Commerce and Industry (ASSOCHAM) while welcoming RBI's decision, also pointed out that a cut in the CRR would have helped improve the liquidity, which is essential for maintaining the GDP growth of 8 per cent.

''Leaving the Repo Rates and the Bank rates unchanged is a pleasant surprise in the Credit Policy. However, the industry would have liked additional infusion of the liquidity through a cut in the CRR, which has been kept unchanged at 5 per cent,'' ASSOCHAM President Anil K Agarwal said.

The Federation of Indian Chambers of Commerce and Industry (FICCI), however, was of the opinion that RBI's decision will ensure growth, specially in the manufacturing sector.

''This would ensure momentum of growth, particularly in manufacturing,'' FICCI President Saroj K Poddar said in a statement.

However, the RBI has displayed its concern by raising the risk weightage of real estate and personal loans and also by tightening the exposure of banks to capital markets. It is through these measures that the RBI aims to decelerate non-food credit growth to 20 per cent.

Mr Poddar added that RBI's confidence in our economy is evident from its forecast of 8 per cent GDP growth for 2006-07.

Federation of Indian Export Organisations (FIEO) felt the hike in ceiling on the interest rate on foreign currency by 25 basis points will increase the cost of credit to the export sector, rendering Indian exports less competetive.

FIEO President O P Garg while lauding the RBI upon delegating authority to Authorised Dealers (ADs) to extend the time limit for realisation of export proceeds upto invoice value of 1,00,000 dollars beyond six months, said this move would benefit a large number of exports.

UNI RA SR KN1820

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