India Inc asks Reserve Bank to change course

Wants easier monetary policy, affordable credit for SMEs, exports and infrastructure, among others

India Inc on Monday put its case to the Reserve Bank of India (RBI) for an end to monetary tightening and a shift to an easy money policy, to ensure affordable access to credit.

The Confederation of Indian Industry (CCI) and the Associated Chambers of Commerce and Industry (Assocham), with representatives of credit rating agencies, had a discussion with the RBI brass, including Governor Raghuram Rajan. The second-quarter review of monetary policy is slated on October 29.

CII suggested RBI send a signal that there would be no further tightening and the latter would move to a more accommodative monetary stance. There was a suggestion to ease access to finance for small units. RBI should open a separate window for small and medium enterprises’ financing, to ensure credit at affordable rates, CII said.

A senior executive with a credit rating agency said the RBI leadership listened attentively. The focus of feedback (from industry and agencies) was on ground realities and the macroeconomic context. The corporate credit profile is under strain due to tight liquidity and profitability pressure.

Other requests were for, exports to get priority sector lending status and for more support to the infrastructure sector. Assocham suggested with growth conditions still weak, RBI could reduce the spread between the repo and marginal standing facility (MSF) lending rates, from 1.5 per cent to one per cent, by reducing the MSF rate further.

Due to the ongoing festive season and the coming series of elections, currency leakage from the banking system is likely to be Rs 70,000-80,000 crore. This will constrain money market liquidity further and limit the smooth flow of credit to productive sectors. It was suggested that RBI look at infusing Rs 70,000-80,000 crore through a combination of cash reserve ratio cuts and bond purchases.