Anand Sharma to write to FM, RBI governor seeking re-look at credit policy

NEW DELHI: Commerce and industry minister Anand Sharma is ``disappointed’’ with the RBI’s decision not to reduce interest rates in the credit policy announced on Monday and has said he will write to the finance minister and the RBI governor seeking a re-look at the policy.

"The RBI's decision, whatever reason they have based it on, is disappointing and will not help in reversing the trend when it comes to the core sector manufacturing . I shall definitely be writing both to the FM and the RBI governor," Sharma told reporters on Monday.

The minister said the manufacturing sector was not, at the moment, affected by the problem of growing inflation or continued rising prices which is an important consideration for a rate correction.

"Last eight months there has been a clear decline in manufacturing inflation continuously from over 7 % to little over 5 %. Inflation is because of food articles, that too in seasonal vegetables and not in perennial vegetables," Sharma said adding that for the industrial sector, which was not showing inflationary trend, a different yardstick should be applied while deciding on interest rate cuts. "Therefore, there is a case for re-look (at interest rates)," the minister said.

Sharma said he was disappointed with the policy as the commerce and industry ministry was hoping for news that would boost manufacturing. "We were hoping that there would be some positive news as far as the investments are concerned, given the fact that there has been a decline in manufacturing for the last eight months. The investment sentiment is low," the minister said.

Exporters said a decline in interest rates was vital for continued competitiveness of Indian products in the global market. "Although price elasticity of Indian exports is low, it may be appropriate to exercise the option of a interest rate cut in the current fragile global situation given the poor IIP performance, fall in GDP to a 10 year low, and a downtrend in exports in the last 3 months," Fieo chief Rafeeque Ahmed said.

The increase in limit for export credit re-finance from 15% of outstanding credit of banks to 50% by the RBI, however, has spread some cheer as the potential release of additionally liquidity of over $ 300 billion will be equivalent to about 50 basis points reduction in the CRR or cash reserve ratio.

Industrial production growth rate slowed down to 0.1% this April from 5.3% a year ago while exports declined by 4.2% in May 2012.