India beats a path to the crossroads of the world

The first positive in the credit policy announced by governor YV Reddy is that it had no surprises. The slight increase of 25 basis points (bps) in the reverse repo rate was anticipated — given the critical importance that RBI gives to effective management of liquidity in the economy. The expectation that the Indian economy would grow at 7% in '05-06, that inflation would be in the range of 5-5.5% and caution expressed on the impact of growing uncertainties on the oil front were all on expected lines. The second positive factor is the emphasis on continuity. At a broader level, the stance of the policy for '05-06, in many ways, echoes the priorities set in the last policy. There is a focus on provision of appropriate liquidity to meet credit growth and support investments and export demand in the economy. There is also equal emphasis on price stability, creating an interest rate environment that is conducive to maintaining the momentum of growth and taking calibrated measures to stabilise inflationary expectations. The continuity is equally reflected in the unchanged levels of bank rate and cash reserve ratio (CRR). Having said that, the governor has made changes as well. Significant recommendations of the Technical Group on Money Markets, Technical Group on Central Government Securities, and Reserve Bank of India's internal group on forex market liberalisation have been accepted and recommended. As Indian companies become more global, many of the measures proposed in the areas of forex management are progressive. The permission to cancel and rebook all eligible forex contracts and the extension of trading time in the forex markets will add tremendous flexibility to the corporates' forex management. Enhancing the ceiling on overseas investments in joint ventures or subsidiaries to 200% of net worth under the automatic route is a step in the right direction for globalisation. Another commendable aspect is the new measure taken by the governor to provide a quarterly review of the policy. It is critical for markets, corporates and the economy at large to have more frequent assessments of the economic situation by the central bank and this measure will facilitate a structured dissemination of views. The Reserve Bank of India has done well over the past year in using a combination of monetary and direct action measures to maintain a fine balance between encouraging growth and controlling inflation. The message that comes through in the current statement is that, barring unanticipated, globally-transmitted shocks, one can continue to expect stability in policies. And for India Inc, nothing is more important than stability and accelerating globalisation. (Suresh Senapaty, CFO, Wipro Limited)

India beats a path to the crossroads of the world

The first positive in the credit policy announced by governor YV Reddy is that it had no surprises.

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