 "Suresh C Senapaty")
I would like to congratulate the Reserve Bank of India (RBI) for taking corrective measures to contain the government's CAD (current account deficit) and curtail volatility in the foreign exchange market. The policy measures should improve the systemic liquidity in the economy and are well-timed. The coming festive season and elections in certain states are potential causes of liquidity tightening.
Increasing the term repo limit for banks to 0.5 per cent of NDTL (net demand and time liabilities) would help develop a term repo market. Considering the high wholesale and retail inflation, RBI is justified in raising the repo 25 basis points to 7.75 per cent.
Some proposals in the area of retail inflation-linked securities, would provide the common man financial instruments to protect savings from inflation and offer an alternative to gold. The general inter-bank recurring order-based electronic bill payment proposal should lead to faster, cheaper payments, with reduced risks of fraud.
RBI has performed a careful balancing act in managing inflation expectations and reviving growth. Growth seems to have bottomed out and I am optimistic about gross domestic product (GDP) growth in the second half of FY14. RBI's FY14 projection of five per cent GDP growth points to a rise in growth in the second half of FY14; we saw only 4.4 per cent year-on-year growth in the first quarter. The government's initiatives to hasten projects would also aid a sustainable turnaround.
While the rupee seems to have stabilised, India continues to be vulnerable to sudden shifts globally. Tapering of the bond-buying programme by the US Federal Reserve has the potential to impact currency and capital flows. Recurrence of volatility in the rupee and consequent extreme movements could distort export competitiveness. Making imports cheaper could discourage manufacturing, leading to undue pressure on CAD.
I am confident both RBI and the government would continue to monitor currency fluctuations so as not to vitiate the intrinsic value of the rupee and support domestic businesses.
Suresh C Senapaty
Executive Director & CFO, Wipro
