Assocham calls for reduction in CRR
Apprehending tightening of monetary policy in the wake of increasing inflation, industry body Assocham has recommended reduction in Cash Reserve Ratio (CRR) as it would adversely affect GDP growth.
By PTI |
NEW DELHI: Apprehending tightening of monetary policy in the wake of increasing inflation, industry body Assocham has recommended reduction in Cash Reserve Ratio (CRR) as it would adversely affect GDP growth.
"Rising CRR and interest rate will have a negative impact on economy in longer run and project cost will go up, leading to mismatch between supply and demand for commodities and services," Assocham President Veugopal Dhoot said adding "In short term, cost of production will go up, leading to further inflationary pressures."
Reversal of RBIs strong bias for higher interest is the most obvious measure to ease the situation, especially in view of impending global growth slowdown, moderation of inflation and unwinding of international liquidity overhang, he said.
The tight monetary measures, undertaken by the RBI in response to the potential overheating of the economy has increased the borrowing cost for corporates as banks are forced to increase the lending rate on the back of high demand for credit against tighter liquidity and interest rate scenario, Dhoot said in a statement.
Instead of using measures like CRR and SLR, the government should take steps to increase the production capacity of the economy. Steps also need to be taken to remove existing supply bottlenecks in the agriculture and infrastructure sector.
A modern financial sector needs to be developed and on the fiscal front the government should reduce the import tariff on investment goods, thus leading to reduction in prices, it added.
The CRR has been raised in two phases by 50 basis points to 5.50 per cent effective from December 23, 2006 and January 6, 2007.
"Rising CRR and interest rate will have a negative impact on economy in longer run and project cost will go up, leading to mismatch between supply and demand for commodities and services," Assocham President Veugopal Dhoot said adding "In short term, cost of production will go up, leading to further inflationary pressures."
Reversal of RBIs strong bias for higher interest is the most obvious measure to ease the situation, especially in view of impending global growth slowdown, moderation of inflation and unwinding of international liquidity overhang, he said.
The tight monetary measures, undertaken by the RBI in response to the potential overheating of the economy has increased the borrowing cost for corporates as banks are forced to increase the lending rate on the back of high demand for credit against tighter liquidity and interest rate scenario, Dhoot said in a statement.
Instead of using measures like CRR and SLR, the government should take steps to increase the production capacity of the economy. Steps also need to be taken to remove existing supply bottlenecks in the agriculture and infrastructure sector.
A modern financial sector needs to be developed and on the fiscal front the government should reduce the import tariff on investment goods, thus leading to reduction in prices, it added.
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The CRR has been raised in two phases by 50 basis points to 5.50 per cent effective from December 23, 2006 and January 6, 2007.
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