Assocham asks for reduction in CRR & SLR rates and to moderate forex inflows in the capital market

October 08, 2010 :

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has stressed the need for reducing the CRR and SLR rates to facilitate the economy to enter the double digit growth orbit.

Despite gradual reduction, the ASSOCHAM said, CRR and SLR are still high compared to international averages. Given the governmentís resolve to reduce fiscal deficit , the relevance of CRR to control expansion of credit has significantly lessened and SLR should not be treated as a major instrument for funding Public Sector.

One result of the RBIís attempts to control inflation through monetary measures has been that the credit growth in the current year has slowed down which could impact growth momentum in the coming months.

ASSOCHAM feels that the inflation is more on account of supply side constraints, rather than excessive money in the system.

Assocham has also stated that the cost of borrowing in India is one of the highest in the world and it impacts manufacturing and competitiveness. The spread between the lending rates and borrowing rates needs to be reduced particularly in the context of sharp decrease in the NPA level.

Soft interest rates will not fuel inflation as the main reason is supply side shortages in agriculture products and management of supply side is the answer to the real time sustained double digit inflation for the last over 18 months and only the liberal credit to productive sector will spur growth and strengthen supply chains and help contain inflation.

Referring the sharp appreciation of Rupee vis-ŗ-vis other currencies ASSOCHAM as a short term measure, RBI to intervene in the market to arrest the sharp appreciation of Rupee and for the long term, some sort of a mechanism like currency stabilization fund should be explored so as to take care of the difficulties of the exporters.

ASSOCHAM has further stated that the time has come that the massive foreign exchange inflows in the Capital market needs to be moderated as it upsets not only the capital market but the entire economy. Such hot money needs to be retained for a reasonable tenure or the investments reach through channels other than PNs. These inflows could be moderated by initiating a separate foreign Transaction tax on the inflows as well outflows. This will boost revenues as well as put some deterrent on the funds movements.

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