Right advice: Cut CRR to 5 pc

The BJP asked the Govt to cut cash reserve ratio - the portion of funds that banks have to keep with the RBI-to 5 pc to inject more liquidity in the economy to tide over the present crunch, reports Vikas Pathak.

The BJP on Tuesday asked the government to cut cash reserve ratio (CRR) — the portion of funds that banks have to keep with the RBI — to 5 per cent to inject more liquidity in the economy to tide over the present crunch.

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BJP leader Arun Shourie said the recent cutting of CRR by 150 basis points — 1.5 percentage points — was inadequate. He also called for the repo rate — the rate at which RBI lends to banks in the short-run — to be brought down by 200 basis points, 2 percentage points, by March 2009.

He demanded the opening of a line of liquidity for mutual funds, to prevent them from collapsing.

Shourie also made a case for enlisting the support of the huge Indian diaspora. Arguing that NRIs were looking at a safe haven to park their savings in view of the global financial meltdown, he suggested that the Centre and RBI float the equivalent of the Indian Millenium Deposits and Resurgent India Bonds brought out by the NDA to invite NRI funds by paying them good interest rates.

Former finance minister Yashwant Sinha said the government was wrong in blaming the present crisis entirely on the global situation. He said it had wrongly used monetary measures — increasing the CRR from 5 to 9 per cent — to control a supply-induced inflationary condition, and thus sucked liquidity out of the system.