Industry chambers hail Credit Policy

NEW DELHI: The industry on Tuesday hailed RBI''s softening of interest rates in the Credit Policy 2003-04 and hoped it would lead to further cuts in lending rates of banks giving enough incentives to spur industrial production.
The reduction in bank rate and Cash Reserve Ratio (CRR) by 0.25 percentage points each is expected to translate in further reduction in lending rates of banks which had remained "sticky despite regular reduction in bank rates�, Ficci president AC Muthiah said in a statement.
On RBI''s expectation of 5-5.50 per cent inflation during this year, Ficci said, "This is an optimal level, which will give the industry enough incentive to produce without hurting the consumer."
In a mixed reaction to the policy, Assocham welcomed the measures to improve credit delivery mechanism and continuation of soft interest rate regime, but cautioned that it might not generate the desired growth.
"While RBI has given special attention to agricultural sector, micro-financing and boosting infrastructure financing, the policy is unlikely to unshackle the economy and generate growth," Assocham president RK Somany said.
Pointing towards the current economic trends, Assocham said efficacy of monetary policy has minimised and therefore "RBI should look at ways to reflate the economy rather than trying to control the economic activity through monetary policy tools alone".
Assocham said the policy failed to address the high real interest rate, an issue which was of concern to the retired and fixed income people depending on interest rate income.
Reacting to the policy, Planning Commission member NK Singh said, "It is for sustaining growth momentum and it is to sustain the kind of growth manufacturing sector is targetting in future (8-9 per cent)."
Asked if cut in bank rates would not lead to reduction in interest rates on bank deposits thereby hurting the common man, he said, "You will have to take things in totality. Ultimately the common man will gain from investments and he will gain from growth impluse that the RBI''s credit policy is aiming to achieve."
Welcoming the policy, CII president Anand Mahindra said reduction in the bank rate and CRR is an important step towards aligning domestic interest rates with international rates and the 25 basis point cut in CRR would release Rs 3,300 crore of additional liquidity in the banking system.
PHDCCI president PK Jain said the move reinforced RBI''s commitment to rev up the economy at a time when it was showing signs of recovery.
"Taking into consideration that banks are flushed with funds, RBI should have announced innovative schemes to improve the credit delivery to industry," Jain said.
However, FIEO president Rafeeque Ahmed expressed concern that the policy had no specific concessions for the export sector but welcomed the decision to continue extending refinance facility to eligible export credit remaining outstanding under post-shipment rupee credit beyond 90 days and up to 180 days.
The Indian Chamber of Commerce and Industry termed the policy as growth-oriented and said the reduction in bank rate and CRR would generate additional resources for investment.
President, Indo-American Chamber of Commerce, Vinod Chandio said the policy would "make credit cheaper and unlock the impounded funds for development work�.