Easing ECB norms fail to impress industry

Easing ECB norms fail to impress industry

New Delhi: “We told you so!"

That’s what industry body Federation of Indian Chambers of Commerce and Industry (Ficci) is telling the government in the face of a challenging business environment; squeezing credit to tame inflation was not the right policy to adopt — especially when prices were rising due to supply-side bottlenecks.

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ddd59636-a11d-11dd-b906-000b5dabf613.flvFicci is also unimpressed with RBI liberalizing ECB norms, allowing firms to raise up to $500 million abroad under the automatic route. “ECB today, when international banking community is running away from lending, what does ECB mean? We argued for this 6 months ago and it should have been opened 6 months ago, when there was credit in the international market. Today, banks are running away from credit. It’s like bolting the stable after the horses have left," says Ficci president Rajeev Chandrashekhar. On the other hand, Finance Minister, P. Chidambaram says easing of overseas borrowing norms will increase inflows. “The idea is that those who have raised money in the past and those who will raise money now in the liberalized regime will bring back the money," he says.

With the RBI lowering its growth forecast to 7.7% from 7.9% on Thursday, the economic slowdown is clear. So what does this mean for corporate India? According to Rajan Mittal, MD, Bharti Enterprises, “Fundamentally [a] slowdown will have an impact on new investments which are coming in." And that’s why industry has been asking the government to look into the caps on some sectors like insurance and retail.

Chidambaram on Thursday attempted to reassure the industry that brisk lending would begin: "If you go by the reverse repo, I think there is adequate liquidity. The point now is banks should not park excess funds with Reserve Bank. They have been advised to lend". However skepticism remains. It’s not that easy to get money from banks, and interest rates continue to hover at a prohibitive 16-17%.

In response to help manage the challenging economic situation, Ficci has provided its own agenda — among other things it has asked the government to bring down CRR to 4.5% (2004 level) and the repo rate to 5%.

RBI will be reviewing its mid-term policy on Friday.