Policy matches expectations of India Inc

Corporate Bureaus

Mumbai / New Delhi: Corporate India has welcomed the slack season RBI policy. Despite there being no major policy announcements or tinkering with the rate structure, industry leaders and associations feel that the stability in the policy and the provision of liquidity in critical areas were a welcome move.

Federation of Indian Chambers of Commerce and Industry (FICCI) said that while the Gross Domestic Product has been projected at 6.5-7 per cent for the year 2004-05, efforts will be made to enhance the growth rate to 8 per cent for the year.

The reduction in the benchmark Prime Lending Rate (PLR) by about 50 to 200 basis points is indeed a step in the right direction. This initiative should be strengthened so that the BPLR falls further, Ficci said. Ficci has also welcomed the expansion of definition of infrastructure lending, wherein the emphasis is largely on the infrastructure to agro processing and agriculture and as also on educational institutions and hospitals.

Confederation of Indian Industry (CII), the other apex industry body has said, "While GDP growth is expected to continue to be robust, there could be some concerns on inflation due to rising oil prices as well as excessive domestic liquidity."

"However, the RBI governor has shown wisdom in maintaining the current interest rate environment, arguing that the price situation is unlikely to cause concern to macro-economic stability," CII insisted.

Associated Chambers of Commerce and Industry of India (Assocham) has complimented RBI governor YV Reddy for ensuring continuity in the policy and also for taking the initiative to retain policy flexibility in the Indian monetary and financial regime, and also taking the economy steadily towards greater market determination of the exchange rate.

Larsen & Toubro CFO YM Deosthalee is of the opinion that the policy has continued with the stance as in the earlier years. "It is an attempt to balance the twin objectives of sustaining the growth momentum in the economy, while ensuring a conducive interest rate environment and ample liquidity. The clear focus of the policy on improving the credit delivery to SMEs, agriculture and infrastructure is welcome," feels Mr Deosthalee.

AV Birla group company Grasim Industries CFO DD Rathi termed the policy as a good one for one simple reason it is a continuation of the old announcements and hence stable. Mr Rathi adds: "However, there is a great caution on inflation. While the RBI has hinted at inflation moving north, there could be more inflation due to various factors including increase in crude oil prices."

The RBI has also been very soft on interest rates. While no changes have been announced, there is a subdued hint that interest rates would go up in the second half of the current year, said Mr Rathi.

On the couple of changes announced in the banking sector, Mr Rathi added that the RBI should have been more aggressive on the NPA issue which is the key issue in banking. The RBI should have announced stringent measures for debt recovery rather than constituting a committee for it.

Ispat Industries Ltd managing director Vinod Mittal felt that this was the right policy issued at the right time. "The policy will help stabilise the turbulent market and help the country achieve a steady growth path. It will catalyse liquidity in the money markets and stimulate investment especially in infrastructure," he added.

Federation of Indian Export Organisations (FIEO) president Rafeeque Ahmed said that the projected GDP growth of 6.5-7 per cent augured well for the Indian economy. He also welcomed the new Gold Card scheme for exporters and the time limit for issuance of Gold Card by banks, which, he said, should be monitored by RBI. He also appreciated the RBI's concern about the bottlenecks coming in the way of flow of bank credit to agriculture and Small &; Medium Entreprises (SMEs).

PHD Chamber of Commerce and Industry (PHDCCI) has said that while the policy will make available more funds to the core sectors including infrastructure, agriculture and exports, a suitable mechanism should be put in place to ensure effective implementation of the policy announcements.

Indian Merchants' Chamber (IMC) has welcomed the overall stance of the RBI's delayed annual monetary policy for 2004-05 providing adequate liquidity for credit, investments and export demand while keeping close watch on the price level and maintaining soft interest bias conducive for growth. "As expected, the policy has made far-reaching structural changes in the financial sector reforms despite the current uncertain times. Specifically on the infrastructure front, the RBI has taken a number of steps like broadening the definition of infrastructure lending, constitution of a working group on credit enhancement by state governments for financing infrastructure and banks allowed to raise long-term bonds to finance infrastructure," IMC president Nanik Rupani said.

ICRA has said, as for the GDP growth rate projected, even though it appears reasonable, the projection of 5 per cent inflation rate calls for some comment. In particular, the projection of a 6.5-7 per cent GDP growth rate, in consonance with a higher-than-anticipated inflation rate, clearly emphasises the apex bank's expectations that growth will be across sectors."

Ispat Industries Ltd director finance & secretary Anil Sureka feels that "There has been no major changes in the credit policy and, I feel that the very fact that there has been no indication with regard to interest rates is a good signal. Basically, I feel that once the new government comes into office, we could expect more policies to follow."