RBI announced on the 29th Jan, increase in the cash reserve ratio (CRR) of scheduled banks by 75 basis points from 5.0 per cent to 5.75 per cent of their net demand and time liabilities (NDTL) in two stages; the first stage of increase of 50 basis points will be effective the fortnight beginning February 13, 2010, followed by the next stage of increase of 25 basis points effective the fortnight beginning February 27, 2010. As a result of the increase in the CRR, about Rs. 36,000 crore of excess liquidity will be absorbed from the system.
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As excess SLR investments are over Rs 2 lakh crore and the Govt borrowing programme is completed by 98%, the hike in CRR will can easily be neutralised. The 75 bps hike is too little when the RBI itself had raised its headline inflation projection for end-March to 8.5 per cent from earlier 6.5 per cent. This half hearted measure can not be effective in containing inflation which may turn into runaway inflation.
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“There will be sufficient liquidity in the system even after the CRR hike to meet potential demand for credit from the private sector. Inflation is inimical to growth. The CRR hike will anchor inflationary expectations without hurting growth impulses,” admits RBI Governor,
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To satisfy industrialists demands RBI did not hike repo rate.I n order to protect consumers from hyper inflation, CRR is hiked. These measures are in conflict with each other and the RBI COULD ACHIEVE NEITHER OF THE OBJECTIVES FULLY.
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Excess SLR investments of SCBs Rs.2.27 lakh crore |
Commercial banks’ holdings of securities as on January 15, 2010 at 30 per cent of their net demand and time liabilities (NDTL) were higher than 28 per cent at end-March 2009 and 29 per cent a year ago. Excess SLR investments of SCBs increased to Rs.2,26,720 crore as on January 15, 2010 from Rs. 1,69,846 crore at end- March 2009. A major portion of amount could have been given as credit to productive sectors like Agriculture and Industry instead of parking in Govt Securities.
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Kharif agri out put is projected to be down by 16%: Agri GDP to be negative-1%- FY 2010- RBI
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All India Agricultural Production down by 10%
The farm sector output is likely to dip by 6-7% in the third quarter. Planning Commission member Abhijit Sen said that the fall in farm output could be as steep as 7-10%.
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| The forecasters’ survey —estimated that the Indian economy would grow by 6.9 per cent this year — and improved business sentiments. Agri GDP is expected to in the negative territory by -1% due to poor kharif output down by 16%, on account of deficient monsoon. |
| % |
Actual 08-09 |
Est. 09-10 |
Est. 10-11 |
| GDP |
6.7 |
6.9 |
7.9 |
| Agriculture |
1.6 |
-0.9 |
3.5 |
| Industry |
2.6 |
8.4 |
8.1 |
| Services |
9.4 |
8.7 |
9.0 |
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| However, RBI over optimistically raised the baseline projection for GDP growth for 2009-10 over to 7.5%, assuming a near zero growth in agricultural production and continued recovery in industrial production and services sector activity.RBI, of course, admits that ‘Public expenditure continues to play a dominant role and performance across sectors is uneven, suggesting that recovery is yet to become sufficiently broad-based’.Agriculture sector gets only 17 per cent to the national income, though more than half the population contribute to the farm sector’s output. |
Food inflation rises to 17.40%
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Food inflation inched up to 17.40 per cent for the week ended January 16 on account of high prices of potato and pulses. Potato prices rose as much as 57.56 per cent over the last year, followed by prices of pulses which jumped by 46.87 per cent.
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RBI’s whole sale inflation projection for end-March 2010 at 8.5% is two percentage points higher than the projection made in October 2009 and is close to three times its avowed medium-term goal of three per cent. And the primary duty of RBI is price regulation through judicious use of all available monetary measures!
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HOW INDEPENDENT IS THE RBI?
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The RBI is not constitutionally independent, as the 1934 act governing its operation gives the government power to direct it. As tends to be the case globally, the government appoints the central bank governor. It also appoints four deputy governors. "The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest," the act says. Technically, the government is also permitted by the act to supersede the central bank if it believes the RBI has failed to carry out its obligations. FE 311209
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| KRSR/300110 |
