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| Edited By: |Source: DNA |Updated: Feb 09, 2015, 11:44 AM IST
The Reserve Bank of India has found ways to increase liquidity in the banking system without changing the interest rates. In its sixth bimonthly monetary policy statement on Tuesday, the central bank had created an opening for retail banks to facilitate credit flows by reducing the Statutory Liquid Ratio (SLR) by 50 basis points from 22 per cent to 21.5 per cent. It has also shown enough flexibility in keeping the overnight and the short-term (seven days and 15-days) repo rates fluid. The RBI has once more ignored the loud demands from the government and from the banking sector for a rate cut.
While appreciating the government’s measures to get infrastructure projects going, the RBI noted that the fall in oil prices has not been the blessing it was made out to be except in some sectors like automobiles. Low oil prices affect India’s exports in petroleum products because of reduced export demand. It has also been observed that a stronger rupee has been a drag on export earnings.
The BJP-led NDA government must be quite aware of the assessment of the macro-economic situation outlined by the RBI in its press statement, though political expediency compels the ruling dispensation to demand a rate cut. Inflation pressures, the RBI has observed, have not disappeared though the main inflation indicator, the Consumer Price Index (CPI) has declined. Finance minister Arun Jaitley and his colleagues in the ministry who are now engaged in preparing the 2015-16 budget will have to keep in mind the concerns raised by the central bank. The very same concerns are likely to be reflected in the forthcoming Economic Survey as well as in the Budget itself.
The world economy is not really looking up with the American economy not yet in the take-off mode and the European Union continuing to be in the doldrums. Not to forget that China has slowed down. Directly or indirectly, these concerns are sure to impact India’s growth prospects. FDI flows as well as export earnings will be subdued if the global economy remains sluggish.
The financial meltdown and the recession that began in 2007-08 have dragged on for too long. And the end is not yet in sight. What is needed is innovative strategy to break the economic lull. Greater public investment in infrastructure projects is the need of the hour. It is the government that will have to take the initiative in the matter. But the private sector can do much as well by kick-starting the economy on a smaller scale and creating jobs. This will improve the business sentiment.
The captains of industry and business must shed their timidity. They should not wait for the RBI to cut the rates and the government to dole out projects. The banks, too, have a role to play in this process. They can make credit off-take liberal so that the private sector projects can get off the ground. The waiting game, of the government and of the private sector including the banks, must end. The risk factor will be quite high but risk-taking is the stuff of any free market economy.
The government on its part will have to think of innovative strategies. Perhaps, it is not enough to consult the economists though it will be necessary. It would not be a bad idea if the government were to set up an entrepreneurial fund on the lines of the infrastructural fund so that some out-of-the box ideas can be tried out. This can be done by the public sector banks themselves. It is now time to act in order to turn the economy around.
