The Associated Chambers of Commerce and Industry of India (Assocham) has asked the Reserve Bank of India (RBI) to inject enough liquidity in to the market through the routes of cash reserve ratio (CRR) and repo rate. The chamber has requested the apex body to reduce the CRR and repo rate by one percentage point, allow banks to borrow against government securities and provide dollars directly to oil companies for purchasing crude oil.
In its recommendation submitted to the RBI Governor, Assocham President Sajjan Jindal pointed out that several companies are now looking for rupee funding owing to the uncertainty in dollar within the RBI-approved spreads. It suggested that for future planning, instead of squeezing credit which would have a serious impact on the survival of the industry, the level of credit should be redefined taking the base effect into account.
The price and supply conditions may get worse if the central bank resorts to raising interest rate to control the spiraling inflation and the move would not only hurt the industry but also the consumers, the association marked.
Presently, Repo rate and Cash Reserve Ratio stands at 9% each.
The association feels that if the CRR and repo rate is reduced by 1% in the coming credit policy review on 24th of this month, there would enough liquidity into the system to enable corporates to borrow and facilitate capacity expansion plans.
Currently, the Indian industry borrows at a rate that varies between 25% and 28%, which "is very high, as a result of which its margins have already shrunk," said Assocham.
Alongside, commercial banks should be permitted to borrow against government securities for increased credibility. The norms that govern external commercial borrowings should also be eased in order to help industry in raising international finds.