Chambers Ask Govt To Ease Cash Crunch

Leading apex chambers have urged the government to take appropriate steps to ease the cash crunch that the industrial sector is facing.

The chambers have also suggested that the cost of credit be reduced to make it more competitive despite the two per cent cut in cash reserve ratio (CRR) by the RBI last year. The tight money conditions have been eased only on paper, according to the industry associations.

The industry continues to have the problem of availability of funds from banks. While it appears banks are funds flush, they are reluctant to lend as a fear psychosis has affected them due to stringent questioning by enforcement officials, Confederation of Indian Industry president Shekhar Datta told the news agency. The government needs to give clear signals to restore the industrys confidence, he said.

 

Ficci president AS Kasliwal said among the important decisions expected from the budget was the revitalisation of the capital market by committing to it a percentage of provident fund and pension fund.

Due to persistent sluggishness of the capital market, the corporate sector was finding it difficult to raise finance from the market, Assocham president HL Somany said.

Datta said the cost of funds continues to be exorbitant at 18-19 per cent as the inflation is ruling at 6-7 per cent. He said investments, which have been put on hold by the industry, would begin to flow once confidence was restored. The cost of money should be low as the competitive forces have been unleashed, Datta said adding the government, which is also a major buyer, is unfortunately cutting down on its capital expenditure instead of containing its revenue expenditure.

A multinational company can command credit at a lower interest rate and can source it from several areas while Indian companies have very limited avenues, Kasliwal said.

Kasliwal said the interest rates are very high compared to the international rates of 7-8 per cent. There could have been a marginal decline in interest rates but not sufficient enough to enthuse the industry to go in for investment, he said. The unrealistic pricing of sugar, fertiliser and petroleum would make fresh investments in projects unviable and unprofitable, Datta said.

We expect the budget would be an exercise to strengthen the growth impulses of the economy, Kasliwal said.

Somany said the availability of other safe investment avenues for banks such as government securities are creating hurdles in the transmission of liquidity from banking to corporate sector. We do not deny that there has been a slight decline in prime lending rate (PLR) but it is still very high compared with international levels, he said.

The Assocham president said the corporate sector was finding it difficult to produce internationally competitive products as the cost of capital was uncompetitive.