Mixed reactions from Corporate India

The industry associations' reactions to the RBI's (RBI) credit policy have been mixed, writes Gaurav Choudhury.

india Updated: Nov 01, 2006 14:42 IST

The industry associations' reactions to the Reserve Bank of India's (RBI) credit policy, announced on October 31, have been mixed.

The president of Federation of Indian Chambers of Commerce and Industry (FICCI), Saroj Kumar Poddar, said that the announcement of a hike in the repo rate by 25 basis points, the third time in a row, would raise the cost of capital for industry.

“At the current stage of turnaround in industrial growth, the RBI move will adversely affect the growth process. It is bound to pinch small and medium enterprises much more as fund raising becomes costlier,” said Poddar.

He said that while the move to contain inflation was welcome, care should be taken to ensure that the policy instruments did not impact the interest rate scenario.

The Confederation of Indian Industry (CII) President R Seshasayee welcomed the announcement. “The RBI’s credit policy provides the right compass to take the economy forward," he said. "While the 25 basis-point increase in the repo rate will sound the required note of caution on liquidity, leaving the bank rate and the reverse repo rate unchanged signals the RBI’s commitment to growth. Industry is particularly impressed with the bold steps taken by the RBI in liberalising the capital account.".

"The RBI has introduced a number of measures, which are a signal of a more liberal attitude to capital account convertibility. Pre-payment of ECBs up to $ 300 million from the previous $ 200 million without prior approval of the RBI is a right move. This would give greater flexibility to the corporate sector in pre-payment of their external commercial debts," said the CII President.

Assocham President Anil K Agarwal said that the RBI had done a balancing act on credit policy. “The fact that the RBI has chosen to maintain stable lending rates, including those for home loans, while maintaining growth momentum is a good sign,” Agarwal said.

Sushma Berlia, president of PHDCCI, welcomed the overall stance of monetary policy “to ensure a continuation of the growth momentum while reinforcing price stability”. She, however, felt that the increase in the repo rate would lead to a hardening of the interest rate structure. “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,” she said.

First Published: Oct 31, 2006 18:55 IST