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FICCI suggests monetary related measures to cure malady

21 Nov '08
5 min read

In this context, FICCI would like to suggest the following set of measures for boosting the growth momentum and bringing back investor confidence.

URGENT MEASURES:

Monetary policy related:
1.Bring down CRR from 5.5% to 4.5% - the same level as was seen in the year 2004
2.Cut repo rate from the present 7.5% by 50 bps immediately and bring it down to 5% in the near term
3.Reverse repo rate should be cut by 200 basis points as this would act as a disincentive for banks to park excess liquidity with the RBI
4.Cut the bank rate by 100 basis points
5.Bring down SLR from the present 24% to 22%

Financial sector related:
1.Set up sectoral stabalisation funds for sectors where risk aversion has suddenly shot up and liquidity is not forthcoming
2.Banks must completely deliver on all sanctioned loan limits to corporates
3.Crowding out of private sector from credit markets should not happen with liquidity being used for fertilizer and petroleum subsidies
4.Increase long term liquidity by providing long term Tier I and Tier II capital to banks
5.Protect against systemic defaults by NBFCs by converting them to Banks and bringing them under regulation
6.Bring the focus back on FDI and attract sovereign funds (SWFs)

Fiscal policy related:
1.Announce tax incentives for investment – enhance depreciation levels and introduce investment allowance
2.Fine-tune the customs duty – Rates that were earlier lowered to check inflation should be restored. This is particularly important as we face a serious threat of dumping of goods in the Indian market by the Chinese manufacturers
3.Encourage exports, particularly manufactured exports and high technology exports

MEDIUM TERM MEASURES:
1.Infrastructure is critical for the entire real sector to perform. Initiating large infrastructure projects could act as pump priming in reviving economic activities & growth. The government should look at investing an additional Rs. 100,000 crore per year on building infrastructure in the country
2.Agri reforms should be pursued with a sense of urgency as agricultural output plays a critical role in determining the inflationary pressures in our economy
3.Push for alternative sources of energy. We need to have oil conservation strategies in place and give complete support to developing renewables
4.Stop export of raw material. India's resources should be used for undertaking value addition within the country





FICCI

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