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Lending to productive sectors not to be affected: FM

Written by: Staff

Hyderabad, May 6: Union Finance Minister P Chidambaram has said the recent moves by the RBI relating to hiking of interest rates would not affect flow of credit to the productive sectors, but will make ''moderate lending'' to housing, capital markets, personnel loans and real estate.

''The banks have increased a deposit and lending rates by 50 basis points. That is a consequence of the measures mandated by the RBI. The Central bank identified four areas which in its view have been lending to a level which is not justified,'' Mr Chidambaram said yesterday, in an interaction with select mediapersons on the sidelines of the 39th annual meeting of the Asian Development Bank's Board of Governors here.

The Finance Minister said to reflect the enhanced risks of lending to these four sectors, the banks have increased their interest rate by 0.5 percentage points.

''I expect that lending to these four sectors would be moderated, but the RBI measures will not affect credit flow to the productive sectors,'' he said.

The Finance Minister answered wide-ranging questions relating to various policy measures and the ongoing ADB conference. Among other issues, Mr Chidambaram was asked about India's support for a Pan-Asian Free Trade Agreement (FTA), the impact of crude oil prices on inflation in the country and threats to Indian industry from a free trade regime in the region.

To a poser relating to the soaring global crude oil prices and the measures Indian government will need to take to hedge the Indian economy, Mr Chidambaram said that decision will be taken by the Ministry of Petroleum ''at an appropriate time''.

He noted that the excise duty on LPG and Kerosene was zero and the Rangarajan Committee has recommended a duty structure regarding the petroleum sector.

The government before taking any decision regarding crude prices would take these factors into account.

Regarding a proposal by some leading Asian economies to establish an ACU (Asian Currency Unit), Mr Chidambaram said, India has not taken any formal position on this. The issue was, however, discussed by some Finance ministers among themselves attending the Conference.

He said the issue pertained to the realm of the future and India would keenly watch the developments in this regard.

The ADB was for setting up a basket of currencies and expressed confidence that when the view is firmed up, India ''will have a say'', he added.

Dispelling notions that India was indiscriminately signing FTAs with Asian Countries which could hit Indian industry, Mr Chidambaram said the country's moves were ''slow and cautious''. The decision in this regard were governed by India's self interests, he said. Besides, any agreement of such a nature with China would only be concluded after the two neighbouring giants are fully satisfied. He said such views were pessimistic in nature and did not take India's growing potential into account.

Mr Chidambaram said the ADB meet has brought to the fore India's growing might and its rising clout in the comity of nations.

''Governor after Governor spoke about India's prowess,'' he added.

He said there was reiteration of the fact that India's growth was sustainable and its development experience a success story.

''When people of India will see on the Television and read in the newspapers about what the Governors had to say about the country, they will know first hand what is in store,'' Mr Chidambaram said.

To a question relating to the future of dollar, Mr Chidambaram said he did not think that the Greenback will depreciate as the capital flows to the United States continued to be buoyant.

Answering a question relating to an asset bubble burst due to global imbalances, Mr Chdambaram said there was no such bubble as regarding India. However, an orderly adjustment needs to be worked out to unwind global imbalances.

Asked what were the achievements of the ADB's conference, Mr Chidambaram came out loud and clear that fiscal imprudence needs to be curbed, the PPP model relating to infrastructure development would result in handsome benefits and the private sector was both an innovator and the most efficient way of allocating resources.

Mr Chidambaram said in his bilateral meeting with his Chinese counterpart a review of the progress relating to economic matters was discussed.

''Both sides were satisfied that economic co-operation was proceeding at a satisfactory pace,'' Mr Chidambaram added.


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