A green thumb, but empty at the core

Akhil GUPTA MD BHARTI TELE The mid-term policy document is extremely cautious with a clear overhang of the global risk arising from galloping oil prices. The upward revision of the inflation estimates and the lowering of GDP estimates to 6-6.5%, despite the 7.4% increase in the first quarter, are clearly reflective of this. The only significant change in the policy is a hike of 25 basis point on the Repo Rate, which to my mind was quite avoidable since inflation is mainly led by the supply side â€” oil prices. In terms of market sentiment, it would have been better to leave the Repo Rate untouched since the country needs rapid GDP growth. The only sector addressed by the policy in some detail is agriculture, which is welcome and in line with the Common Minimum Programme. However, a big disappointment is the complete silence on infrastructure projects. It was widely expected that there would be some initiative by RBI with respect to utilising the large foreign exchange reserves for infrastructure financing which has not materialised. Similarly, no other measures have found place in detail in the policy in terms of infrastructure financing. It is quite obvious that in order to realise the full potential of our economic growth, we would have to invest heavily and quickly in infrastructure. This would require a clear direction â€” both in terms of equity financing and credit financing. I hope that we do not have to wait till the annual policy to address these vital issues and that some material steps in this regard would be taken in the near future. The other area where the policy has not been specific is External Commercial Borrowings (ECBs). Lately the government has been reluctant to provide ECB approvals in view of high foreign exchange reserves. There is, today, a clear need â€” particularly for the infrastructure sector â€” to tap more ECBs, rather than less, in view of favourable interest rates and the ability to hedge the foreign exchange exposure of long tenures. While one appreciates that all precautions need to be taken to prevent another South-east Asian crisis, there is a need to welcome more ECBs, particularly in infrastructure, but with adequate safeguards like compulsory hedging of foreign exchange risk within a specified period. The policy also fails to specify any measures to provide much-needed depth to the domestic debt market, particularly corporate debt. This is to my mind imperative in order to achieve and sustain the economic growth which India is capable of. It is important that our financial markets are developed and deepened. It is about time that specific steps in this regard â€” by way of broadening the repo market to include the corporate debt instrument and allowing banks to adopt a tiered risk weighting structure, favouring highly-rated corporate issuers â€” are taken at the earliest. Overall, a cautious policy with a somewhat bearish stance due to the overhang of oil prices, which to my mind was quite avoidable.

A green thumb, but empty at the core

The mid-term policy document is extremely cautious with a clear overhang of the global risk arising from galloping oil prices.

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