Special Correspondent

Strike a balance between price control and maintaining the pace of growth, says Survey

  • Mismatch between credit and deposit growth
  • Survey stress on integration of rural sector

    NEW DELHI: The Economic Survey has warned that despite a comfortable liquidity position, the Reserve Bank of India's monetary policy, aimed at containing inflation, was resulting in hardening of interest rates.

    The Survey pointed out that although the liquidity in the system had improved, it was the high inflationary expectations that were leading to a steady hardening of interest rates during the current fiscal, as in 2005-06. Also affecting the interest rates, it said, was the continuing mismatch between credit and deposit growth.

    Evidently, the strategy adopted by the RBI to check the inflationary spiral is at variance with what the Centre appears to have drawn up and which may be revealed in the budget

    Projecting a likely slowdown in credit growth in the days to come, the Survey noted that the credit-deposit ratio had continued to grow during the current fiscal so far and was pegged at 74 per cent as on January 19, 2007 as compared to 70 per cent in the same period of 2005-06.

    The Survey has highlighted that since the hardening of interest rates was more pronounced in the short-term, it remains and would be a challenge to reconciling the twin needs that of facilitating credit for growth even while containing liquidity to rein in inflation.

    The RBI, the Survey said, had announced various steps such as hikes in the cash reserve ratio (CRR) and the repo rate so as to contain credit offtake at the desired growth rate of 20 per cent and thereby stem the inflationary expectations. It suggested that a balance should be struck between taming inflation and maintaining the pace of growth.

    In this regard, the Survey advised integration of the country's rural sector, especially agriculture, with the organised financial sector as a strategy to arrest the rise in prices.

    Telecom EPC planned

    Within a week of the Government announcing its ambitious Semiconductor Policy to attract global telecom companies, the pre-budget Economic Survey stated that India is expected to become a manufacturing hub for telecom equipment. To give a further boost to the telecom sector, the Government is considering a proposal for setting up "Telecom Equipment and Services Export Promotion Council" and "Telecom Testing and Security Certification Centre" soon.

    FDI was an important source to meet the huge funds required for network expansion, the Survey observed.