Curbing inflation seems to be the major concern for RBI. But is the over emphasis on inflation hurting growth? Yes and no! Inflation, which is an 
iniquitous tax, hurts the poor more than the rich, and must be undoubtedly contained. To that effect, the banking industry seems to have paid heed to RBI Governor Y.V. Reddy’s suggestion (or was it an order?) that “net interest margin of banks was high and there was scope for reducing lending rates.” Considering the fact that non-food credit off-take has come down in the recent past, large banks like SBI, HDFC and ICICI decided to bring down the rates. Thanks to the ‘peer fear’, other banks are falling in line. Increasing credit flow to small scale and medium enterprises, and providing a boost to the housing sector as well as to other productive sectors are amongst the few cited positive effects of the rate slash. But in reality, have banks bent down because of a political diktat from the finance ministry?
Dr. Mukesh Kumar Anand (Senior Economist, National Institute of Public Finance and Policy) rules out the logic, and says “The finance ministry does not interfere with the banks in deciding their rates; the finance minister and the RBI governor merely asked them to consider a reduction in rates in order to boost growth.” But sir, that’s not what many banks are telling us. In fact, the smaller banks are waiting for a deeper rate cut, before following suit. Given the situation, bankers with a good quality portfolio and improved operational efficiency would benefit the most. And the rest will need to shape up. According to Ritesh Maheshwari (Senior Director, Financial Institutions Rating, Standard & Poors), “In 2008, the Indian banking system will continue to reap benefits of a strong domestic growth.” It is expected that prudent monetary policy changes will help bring about the benefit of anchoring inflation expectations. With inflation rate under control, interest rates could come down by 25 basis points or so, or remain stable.
Tied in exchange knots
On a visit to Tirupur, which is around an 80 minute drive from Coimbatore airport, there’s hardly anything that would strike you as particularly spectacular, barring the larger-than-life banners of AIADMK chief Jayalalitha and her party leaders. Even the locals grudgingly admit that there is not one tourist attraction to boast off, and if it were not for the giant strides made as an export hub for knitwear, Tirupur would have had a very slim chance of moving out of obscurity. But move out it did, and how, thanks to Verona, an Italian merchant who recognised the potential and brought in a deluge of business opportunities for these hardworking, entrepreneurial people, mainly from Europe & America. Indeed, the story of Tirupur is, in many ways, a story of the Indian resurgence in manufacturing and exports. Local exporters have been servicing many high-profile international apparel brands like Nike, Adidas, Arrow, Tommy Hilfiger, and departmental chains like Wal-Mart, Target, Sears and Mother Care. In 2006-07, Tirupur’s turnover was a whopping Rs.110 billion.
However, nothing could have prepared these people for the rude shock that came up last year, when the rupee appreciated by almost 14% to the dollar in a very short span of time, making it extremely difficult for them to negotiate better terms with their buyers. Largely unaware of the vagaries of financial markets and hedging techniques, many exporters, who were bullish about expansion till early last year, are now looking for ways to sustain, thanks to business lost to competing countries like Bangladesh, China, Sri Lanka, and Indonesia. Sums up S. Sakthivel, Executive Secretary, Tirupur Exporter’s Association, on the impact, “We were enjoying annual growth rates of over 25% since the last two financial years. But we are expecting to register a turnover of Rs.90 billion for the financial year 2007-08 (which is, in fact, a negative growth of nearly 20%).”
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
iniquitous tax, hurts the poor more than the rich, and must be undoubtedly contained. To that effect, the banking industry seems to have paid heed to RBI Governor Y.V. Reddy’s suggestion (or was it an order?) that “net interest margin of banks was high and there was scope for reducing lending rates.” Considering the fact that non-food credit off-take has come down in the recent past, large banks like SBI, HDFC and ICICI decided to bring down the rates. Thanks to the ‘peer fear’, other banks are falling in line. Increasing credit flow to small scale and medium enterprises, and providing a boost to the housing sector as well as to other productive sectors are amongst the few cited positive effects of the rate slash. But in reality, have banks bent down because of a political diktat from the finance ministry?Dr. Mukesh Kumar Anand (Senior Economist, National Institute of Public Finance and Policy) rules out the logic, and says “The finance ministry does not interfere with the banks in deciding their rates; the finance minister and the RBI governor merely asked them to consider a reduction in rates in order to boost growth.” But sir, that’s not what many banks are telling us. In fact, the smaller banks are waiting for a deeper rate cut, before following suit. Given the situation, bankers with a good quality portfolio and improved operational efficiency would benefit the most. And the rest will need to shape up. According to Ritesh Maheshwari (Senior Director, Financial Institutions Rating, Standard & Poors), “In 2008, the Indian banking system will continue to reap benefits of a strong domestic growth.” It is expected that prudent monetary policy changes will help bring about the benefit of anchoring inflation expectations. With inflation rate under control, interest rates could come down by 25 basis points or so, or remain stable.
Tied in exchange knots
On a visit to Tirupur, which is around an 80 minute drive from Coimbatore airport, there’s hardly anything that would strike you as particularly spectacular, barring the larger-than-life banners of AIADMK chief Jayalalitha and her party leaders. Even the locals grudgingly admit that there is not one tourist attraction to boast off, and if it were not for the giant strides made as an export hub for knitwear, Tirupur would have had a very slim chance of moving out of obscurity. But move out it did, and how, thanks to Verona, an Italian merchant who recognised the potential and brought in a deluge of business opportunities for these hardworking, entrepreneurial people, mainly from Europe & America. Indeed, the story of Tirupur is, in many ways, a story of the Indian resurgence in manufacturing and exports. Local exporters have been servicing many high-profile international apparel brands like Nike, Adidas, Arrow, Tommy Hilfiger, and departmental chains like Wal-Mart, Target, Sears and Mother Care. In 2006-07, Tirupur’s turnover was a whopping Rs.110 billion.
However, nothing could have prepared these people for the rude shock that came up last year, when the rupee appreciated by almost 14% to the dollar in a very short span of time, making it extremely difficult for them to negotiate better terms with their buyers. Largely unaware of the vagaries of financial markets and hedging techniques, many exporters, who were bullish about expansion till early last year, are now looking for ways to sustain, thanks to business lost to competing countries like Bangladesh, China, Sri Lanka, and Indonesia. Sums up S. Sakthivel, Executive Secretary, Tirupur Exporter’s Association, on the impact, “We were enjoying annual growth rates of over 25% since the last two financial years. But we are expecting to register a turnover of Rs.90 billion for the financial year 2007-08 (which is, in fact, a negative growth of nearly 20%).”
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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