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17 Apr 2024, Edition - 3200, Wednesday

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Liberalisation in CRR by RBI, Booster to the Stressed Sectors: Dr Niranjan Hiranandani – President ASSOCHAM & NAREDCO

by businesswireindia.com

Business Wire India
After run out budget 2020, the bi-monthly monetary policy review by the Reserve Bank of India (RBI), which kept unchanged the repo rate in backdrop of inflation control prudence acted against the high hope pegged by India Inc. It was well conveyed that RBI had opted to control inflation over moves that would have resulted in economic growth. With the liquidity crisis and credit squeeze being major challenges, core sectors were expecting specific fiscal moves by reduction in interest rate via repo rate and transmitting its benefits to the end-users would have resulted in stimulating the confidence index and boost the demand economics.

And yet, the RBI monetary policy announcement includes an innovative move which aims to boost growth and help stressed sectors – without a formal policy rate cut. The Credit Policy works its ‘positives’ at two levels. Firstly, infusing additional liquidity of Rs 1 lakh crore in the banking system; and secondly, providing a boost to real estate. Infusing additional liquidity in the banking system is expected to reduce lending rates even though the policy rates have been left unchanged at 5.15 percent. India Inc. will wait and watch how far this move works, given that transmission of previous rate cuts to the end-user have not fully been done. So, it is positive; how far it percolates down to the end-customer remains to be seen.
Still, on the positives, there was mention of ‘policy space is being available for future action’, as also, permit date for commercial realty project loans having been extended by one-year without downgrading asset classification. "It has been decided to permit extension of date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another one year without downgrading the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector. This would complement the initiatives taken by the Government of India in the real estate sector," the RBI statement said.
This (extension of DCCO by a year) will result in positive sentiments in delayed commercial real estate projects, a similar provision for other segments of real estate, including residential, will go a long way in boosting overall sentiment in real estate.

In its statement, the MPC said it will continue to maintain an accommodative stance ‘as long as it takes’. One looks back at 2019, when the RBI MPC reduced five times in a row, by a total of 135 basis points. This holding rates steady ‘twice in a row’ will not just increase the liquidity crisis and credit squeeze, it will also impact market sentiment – as also do little to positively impact the demand side.
For India Inc., it was a Budget Speech that did not have any big-bang announcements to tackle the challenging times in terms of GDP growth, especially in wake of past economic policies disruptions, and the RBI MPC held steady to the ‘no changes in rates’ stance. Obviously, there are indirect positives in the Monetary Policy review, India Inc. looks forward to bold fiscal measures to stimulate economic growth in terms of demand revival. Stakeholders across industries expect more and quick steps that will result in more income in the hands of end-users; in turn seeing an uptick in demand creation. This, in turn, will generate better turnover.
An interest rate cut could have enhanced consumer confidence index, resulting in higher spending. The consumer would have benefited from a repo rate cut transmitted down the line. The government's approach reflects fiscal prudence in order to keep inflation under control; India Inc. feels that fiscal deficit financing wouldn't matter under such economic downturn pressure. Also, extra spending by the government would have kick-started GDP growth, necessary to achieve the goal of becoming a $5 trillion economy. 
Source: Businesswire