India Inc appeals for Rs.1,000 bn liquidity

October 9th, 2008 - 3:51 pm ICT by IANS  

Manmohan SinghNew Delhi, Oct 9 (IANS) A day after the Indian government admitted that the global financial meltdown had caused liquidity problems in India, leading industry lobbies appealed to policymakers to inject Rs.1,000 billion ($22 billion) into the system to help tide over the cash crunch.In separate statements Thursday, two apex industry lobbies, the Confederation of Indian Industry (CII) and the Associated Chambers of Commerce and Industry (Assocham) called upon the government to take bold measures to keep India insulated from the meltdown.

“CII agreed with the finance minister in terms of the outlook toward the Indian economy, and believes that the economy had strong fundamentals. However, some proactive actions are required to keep the momentum positive,” CII director general Chandrajit Banerjee said in a statement.

“These would involve deeper cuts in the cash reserve ratio (CRR) and the repo rate in order to inject liquidity into the system, creating a fund for supporting the capital markets, raising the interest rates on non-resident Indian (NRI) deposits and easing external commercial borrowing norms,” he added.

In a similar statement, Assocham president Sajjan Jindal said that his chamber had sent an urgent missive to Prime Minister Manmohan Singh, urging him to immediately take bold measures.

The measures include injecting Rs.1,000 billion ($22 billion) liquidity in the economy and simultaneously reducing the CRR and the repo rate by 2 percent and 3 percent respectively.

The chamber had also asked for urgent measures to stabilize the rupee, which fell to a six-year low Wednesday, to prevent harsh casualties in Indian industry, leading to loss of thousands of jobs, the statement said.

Assocham has also sought that foreign institutional investors (FIIs) be encouraged to invest in Indian corporate bonds beyond the current limit to an extent of $10 billion with lock-in of inflows for one year.

The requests from the chambers also came after Indian equities crashed during intra-day trading Wednesday, with a key index dipping to its lowest level in two years, before staging a recovery after interventions by central banks ands governments across the globe.

Like the CII, Assocham, too, demanded removal of ceiling of interest rate for external commercial borrowings.

Besides cuts in the CRR and repo rate, the CII also called for creation of a $7-$8 billion fund from the country’s foreign exchange reserves that could invest in Indian securities.

“This will have the benefit of creating a floor for asset prices and preventing further depreciation of the rupee. This fund will ultimately make a profit as Indian asset prices are likely to increase in the longer term,” the CII statement said.

The CII further suggested that the government or the country’s central bank, the Reserve Bank of India (RBI), should raise the interest rate on NRI deposits and if required plan something similar to the India Millennium Deposits or the Resurgent India Bonds that were issued in the early 1990s to tide over the financial crisis.

“These were special deposits for non-resident Indians with returns higher than that available elsewhere,” the CII said, adding: “This would also enhance the dollar inflow and help check the slide of the rupee.”

Both industry lobbies emphasized that the Indian government should adopt proactive policies to ensure that the country remains an island of stability since the rest of the world affected by the crisis has paid the penalty of reactive policies.

“The United States and many countries in Europe are passing through a severe financial crisis. The ripple effects of this crisis are being felt in other countries, including India,” said a resolution adopted by India’s Union cabinet, during a meeting Wednesday presided over by Manmohan Singh.

“We are conscious of the fact that liquidity conditions in India too have tightened in the last few weeks. Our authorities have responded to the situation. The Reserve Bank of India has taken steps to infuse more liquidity into the market. We will watch the situation carefully and continuously, and respond swiftly to the needs of the market.”

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