Mumbai: The Union government is planning the largest farm-loan relief package in the country’s history—totalling at least Rs 32,000 crore—and proposals to this effect will be unveiled when the Union Budget is presented on 29 February. The package, which could end up totalling as much as Rs 90,000 crore depending on the final shape of the proposals, is at the core of efforts by the ruling United Progressive Alliance and its largest constituent, the Congress party, to revive Indian agriculture—and hopefully ride back to power in elections due in about a year. People familiar with the process of creating the package say it will have several components—from a waiver of interest on some loans to the complete writing off of not just stressed assets (or bad loans) but even those loans that have been rescheduled.
A man pulls a hand-drawn cart in front of the Reserve Bank of India building in Mumbai . Reuters. In the four weeks of January, BSE’s bellwether equity index, the Sensex, rose 11.
A half a percentage point cut in banks’ cash reserve ratio (CRR), or the portion of deposits that commercial banks need to keep with the central bank, will release Rs 32,000 crore into the system. This will roughly cover just about 20% of the cash deficit the Indian financial system has been experiencing since the beginning of January. In other words, this will not be enough to address the “structural” liquidity problem, but the market should feel happy about the fact that the Reserve Bank of India (RBI) has shown the pragmatism and flexibility to treat CRR as a tool to manage liquidity and not as a monetary measure.
It’s fairly certain that the Reserve Bank of India (RBI) will pare its growth forecast for the Indian economy when it announces its quarterly review of monetary policy on Tuesday. The annual monetary policy in May had projected 8% growth for India’s gross domestic product (GDP) in fiscal 2012; it was cut to 7.6% in October.
The government and RBI must draw an MFI survival strategy before it’s too late. We need them at least till such time the banks are ready to reach out to the masses. Andhra Pradesh, India’s fourth largest state by area and fifth largest by population, has set a world record.
Last week, Reserve Bank of India (RBI) governor D. Subbarao spoke about a shift in the focus of monetary policy from fighting inflation to boosting growth. “From here on, we could expect reversal of monetary tightening,” Subbarao told the BBC’s India Business Report programme.
he first column in every January is typically invested in crystal-ball gazing. In the past few years, I did try to be funny by cooking up new year resolutions of important financial sector personalities that were never made. Many readers liked them, but I am not very sure whether those who were featured enjoyed it.