The monetary policy staement for 2008-2009 annonced by RBI has come out with ceratin policy innovations apart from initiating measures aimed at combating inflation.
The RBI has again hiked CRR by 0.25 percent.If we take in to account the earlier hike of 0.50 percent the aggregate hike in CRR is as high as 0.75 percent.As a result liquidity amounting to Rs 28000croes will stand withdrawn from the banking system.The liquidity tightening exercise will result in increase in lending rates if not immediately ,a little later,and bring about depreciation in the value of Rupee against dollar and other currencies.The RBI has been pursuing dear money policy for sometime now.The RBI measure will push up cost of production and cost of bank finance.RBI has failed to distinguish bank credit meant for production and credit that will be used for consumption,particularly non-essenrtial consumption.As a result of hike in CRR interest rate on all bank loans regardles of whether they are loans meant for production or unwanted consumption will go up if not immediately at least a little later.Increase in the cost of bank finance will discourage capacity expansion so necessary for increasing production and augmenting supplies.Inflation that is galloping today is on account of supply-side constraints and not because of excess demand.Instaed the RBI must have hiked rates of interest only for loans that will be used for non-essential and unwanted consumption.A cheap money policy could have been adopted in respect of loans meant for production and capacity building for ensuring augmentation of supplies.
Alternatively the RBI could have resorted to traditional MORAL SUASION.This is a traditional weapon of credit control.RBI could have issued direction and advice to banks to curtail credit for non-essential consumption alone.Production credit and credit for agriculture must be continued at cheaper rates of interest.This approach would have ensured growth and helped in controlling inflation simultaneously.
The monetary policy statement contains a few new initiatives which are indeed welcome.The decision of RBI to introduce mobile banking later this year is a good initiative and the same will go a long way in ensuring more and more inclusive banking in India.This is also a low cost channel and will be convenient for both banks and customers.However needed safeguards must be put in place by adequately addreesing issues of security,money laundering issues etc.The policy has attempted adjustment of regulatory policy to make financial products more efficient.It seeks to liberalise outward investments by hiking limits for spendings for acquiring energy and natural resource assets abroad by companies .Such a move will have salutory impact on the swelling foreign exchange reserves which are imposing some cost on Indian economy.Another innovative inintiative is relating to securitisation of priority sector loans.Under this arrangement scheduled commercial banks can buy priority sector loans from RRBs.RBI has also incresed housing loan limit with risk weight of 50 from the present Rs 20 lakhs to Rs 30 lakhs.This will encourage banks to continue lending to housing sector in a big way which will in turn help certain sectors of the economy to grow in the days to come.The advice of RBI to banks to review and curtail lending against warehouse receipts and also aginst commodities is also a welcome step.In a nutshel the new policy statement has gone much beyond inflation fighting perspective of the old towards novel ways of liberalisation,innovation in fiancing and novel financial growth
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