Chambers' view divided on RBI's Credit Policy

New Delhi, Oct 31: Terming the RBI's credit policy as ''balanced and forward looking'', CII President R Seshasayee today said it will provide the right compass to take the economy forward.

''While the 25 basis points increase in the repo rate would effectively sound the note of caution on the liquidity front, leaving the bank rate and the reverse repo rate unchanged signal RBI's commitment towards growth,'' the Chamber said.

However, Industry body FICCI came strongly on the half yearly review of the Monetary Policy. ''The hike in the repo rate by 25 basis points, third time in a row, will raise the cost of capital for industry,'' FICCI President Saroj Kumar Poddar said.

It was of the view that at the current stage of turnaround in industrial growth, the RBI move would adversely affect the growth process and was bound to pinch the small and medium enterprises much more as fund raising becomes costlier.

CII appreciated that RBI was taking the recommendations of the Tarapore Committee on Fuller Capital Account Convertibility forward through its announcements on ECBs, EEFCs, cancellation of forward contracts, etc.

Also, the FICCI Chief pointed out that the doubling of the ceiling of remittance by resident individuals to 50,000 dollars and the easing of ECB rules was yet another indication greater integration with the global economy and marked a step forward in the country's march towards full convertibility.

The increase in extant ceiling of overseas investment by mutual funds from two billion dollars to three billion dollars was a move towards a more liberal Capital Account Convertibility, CII said.

Endorsing CII's view, Assocham President Anil K Agarwal added that the RBI has done a balancing act in mid-term review of the Annual Credit Policy for 2006-07.

''The fact that the RBI has chosen to maintain stable lending rates, including for home loans and maintaining growth momentum is a good sign for keeping the vibrancy in the economy,'' Mr Agarwal said.

It said that the borrowers eligible for accessing the ECBs could now avail additional 250 million dollar with an average maturity of more than ten years. ''The pre-payment of ECB upto 300 million dollar without prior approval of RBI is a welcome step,'' the Assocham Chief added.

He also welcomed the move not to make the home loans expensive and agreed with the RBI Governor Y V Reddy for containing the inflation rate within five to 5.5 per cent.

Meanwhile, PHDCCI President Sushma Berlia also welcomed the overall stance of the Monetary Policy to ensure a continuation of the growth momentum while reinforcing price stability.

She, however said, the increase in repo rate from seven to 7.25 per cent will lead to hardening of the interest rate structure in the country which is already high as compared to international interest rate.

Taking into consideration the comfortable level of inflation, higher growth in aggregate deposits to 20.7 per cent and marginal decline in non-food credit to 30.5 per cent, the hike in repo rate should have been avoided, Ms Berlia suggested.

She said that the apex bank should have revised the bank rate downwards by 0.5 per cent to ease the pressure on prime lending rates which is still high compared to the countries with which the Indian economy has to compete.

Ms Berlia appreciated the extension of the date for compliance of Basel II Norms to March 31, 2008. ''We have to align with international best practices while adopting them in a manner and pace suitable to our economy and environment.''

UNI

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