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Latha Venkatesh

Banking Editor, CNBC-TV18

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RBI Credit Policy: a proper balancing act?

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Madam, don't you think that it is high time that the Govt. and RBI should take some harsh and hard decision to bring the sliding economy back on the track? The steps may include slashing of subsidies without bothering for the dessent from various quarters. Asked by: Shyam Vadalker
Yes the govt and RBI have to take strong steps, but more so the govt. RBI's bandwidth is less. The govt has to clear up the mess on many issues which is time consuming. fir instance coal. Takes time. Power companies are starved of coal. But coal is a nationalised item. Pvt sector cos can't be invited to mine coal like they mine bauxite.Denationalising coal by law willt ake time. As a short cut govt allocated coal mines to pwoer companies but it went to the wrong people thanks to corruption. Deallocation takes time. SEBs dont have the money to buy power. That is because so many people steal power. Stopping it is not easy. Short point....there are no easy steps if you ahve been corrupt and inefficient for years
Can the increase in diesel prices lead to decrease in fuel demand as diesel is now fast becoming a rich man’s fuel with most suvs, Mercedes, bmws running on diesel so what is required is cap on use of diesel also Asked by: Ravi
U have 2 separate questions. Will the rise in diesel prices lead to fall in consumption...one hopes it will. See, we ahve to elarn to pay the correct price for everyting. The correct price of diesel is 62 rupees. But for every litre you buy, you used to pay 45 rupees. Govt paid 17. Now you pay 50 rupees, Govt pays 12 rupees. As you start paying the right price you wills tart using it wisely. You wont run your diesel genset for hours on end. You will run it when needed. Your second issue is of subsidising diesel for expensive cars. That, according to me is unpardonable. The way to stop this is to calculate how many kilometres a disel car runs in the first 5 years, and hence how much diesel it will consume. Say it consumes 10,000 litres. If the subsidy for every litre is 10 rupees, charge the car buyer 10X10,000 upfront over and aboe the price of the car. There is no reason why the tax payer should pay for the diesel of a car owner
Do you feel that disinvestment and FDI steps are populist or reform measures as disinvestment when market is down and govt will not be able to realize funds which it expects will mean a call for further disinvestment or privatization Asked by: Ravi
Now again two separate questions: First divestment...we shouldnt diveest to raise money. That is like selling your hosue furniture to meet your daily expense. We should divest so that public sector companies are woned by minority shareholdeers, mutual funds, FIIs. These ivnestors and the stock mkt willd emand efficiency or they will hammer the stock. So divestment will bring efficiency. If the only aim of divestment is making money,that's not reform. In any case you can never time the market.Is it good to sell when the Nifty is at 5600? May be this is the peak of the year. May be idnex goes to 6000, may it falls from here to 5,200. Who's to say?
Can the CRR reduction help common man where banking sector is weak like in Orissa places which are cut of from main stream and anyhow banks will take some time in putting it in practice and results of which will not be seen in this quarter Asked by: Rajesh
CRR is a percetnage of their deposits that banks can't lend. They have to raise that money thru deposits by paying &% or 8%, but they can't lend it. That CRR percentage has been brought down to 4.5% from 4.75% of total deposits. What it does is, it gives bankers more money to lend. So logically rates will fall. First deposit rates will fall.Dio you think this helps the common man. No. He will earn less for his bank deposits. After the deposit rate is cut, the lending rate will also be cut. Who benefits? businesses borrow a lot of money. They benefit. Will the common man benefit. Well only some of us have EMIs. We may benefit. But what we benefit, we lose because of lwoer intrest on our FDs. And yes, unbanked areas wont benefit. And in India 50% of the population is unbanked.
Do you feel that small cut in CRR can help in raising demand as deals in housing sector are done through black money and auto sales will be dampened by diesel hike so CRR reduction is just an eyewash Asked by: Manav
CRR cut is not an eyewash. It is too small to increase demand or sonsumption I agree. So many finance cos are cutting jobs, so many IT cos are not recruiting. Neither are construction cos or manufacturing or retail shops. That's what is preventing consumption. Not high interest rates. If you ahve a steady job, you wont crib about 10 or 10.5% for your home loan. And separately, yes, a lot of homes are purchased by black money so itnerest rates wont help or hurt them. It is good if people stop buyign diesel cars because of the price of diesel. Why should the tax payer pay 17 rupees per litre of diesel for car buyers. A man who can buy a car doesn't deserve a subsidy, does he?
When one listens to the arguments of commerce minister, FM that local shops are not going to be effected then why is the Govt going in for FDI as it needs huge investments to cut deficits which will require big foothold in Indian market of big foreign firms. Asked by: Ravi
Foreign retail companies can be boon or a curse. On the one hand they can bring in the investment and put in huge supply chains, cold storage facilities etc so that fruit from the farm reaches the shop quickly with minimum waste. If they are able to provide that service and still pay the farmer better, they will be a boon. They can be curse if they use their monoply power and buy the furits cheap when the farmer is in need for money. We have to put in safeguards. In any case I am not sure th foreigners will able to put in that kind of ivnestment.Tell me what is so clever about sourcing furit and vegetable, arranging cold storage and getting it to the city-malls. If Indian companies are not able to beat your local fruitseller, why will a foreign firm succeed. Frankly I dont worry much about foreign retailes taking away INdian jobs.
Lathaji why is Subba Rao so adamant about cutting the interest rates?The businessmen are suffering due to this policy. Asked by: chinmay
If rates are cut, banks give loans freely to car buyers, home buyers, cos. The extra money in the system can chase up prices of goods and services, especially at a time when prices are already high. RBI's first job is to bring down prices. Growth is the govt's responsibility.
Don't you think that big players hamper competition which is against the idea of free markets? Should India not come up with strict laws and their enforcement to ensure that the supply side does not get consolidated which would go against the Indian consumers? Asked by: Akshat Shankar
Yes you are right. That is what the competition commission is trying to do.
When the Globally funds are drying up and western powers are looking at countries like China to bail them, is it the correct time to open up the sectors for global firms as that might give way to fly by night operators like in education and loss making auto companies. Asked by: Manush
Loss making auto companies, is not our problem. If the foreigner makes losses, bad for him. Why do we worry? Yes there will always be fly by night operators in every sector. What makes you thinkIndian companies are not fly-by-night. You dont need foreigners to cheat Indian consumers. Indian companies also cheat.
Why did the Govt have to go in for reforms now after being in power for nearly 9 years as it is still having coalition difficulties and economic fundamentals are weak or was it an impression that it is doing something to avert policy paralysis. Asked by: Arvind
Yes it was trying toa avert that impression. Look reform is not an added extra. Some time you need it to simply survive. For isntance the cost of an LPGF cylinder is 740 rupees for the producer. We pay 400 rupees and expec the govt to reimburse the balance 340 rupees to the oil company. As the price of crude rises globally, the cost of gas also rises and the govt's subsidy bill keeps rising. Now the govt can pay the LPG and diesel subsidy bill only if it raises taxes. Do you want that? Short point, reforms became a necessity. It's not an option. Cutting sunsidy is a huge reform. Because gas is comign cheap people dont use it wisely. They waste it. If you price a product correctly, people will avoid wastage. Such reforms are necessary.
Is the reduction of CRR aimed at Industrialists and Corporates to strengthen their sales and balance sheet or will it be of any help for common man as inflation will anyhow keep things like homes, autos and expensive food stuff out of reach from common man Asked by: Arvind
It doesnt look like higher diesel prices are keeping cars out of the reach of the common man. Look at the number of cars on the road and the steady double digit growth of car companies.
Is the reduction of CRR a ploy of Govt to deflect from Diesel hike as it would after few days blame it on Central bank for rising inflation and freeing more liquidity into system Asked by: Shailesh
That may not be the ploy. The ploy may be, when diesel prices are raised, peopel have less money to buy other stuff. So RBI tries to improve spending-power by ensuring lower interest rates.
How much is FDI in aviation going to work for aviation sector as in only few routes in metros which are profitable for airlines and aviation sector globally is in difficult situation whether its ATF, load factor budget airlines etc Asked by: Manush
You are absolutely right.
Is the fear of inflation forcing RBI to keep the interest rates constant Asked by: chinmay
yes
Will an unchaged repo rate force government to do its part and do away with the subsidies Asked by: chinmay
I doubt it. Indian govt cannot do away with subsidy. They may at best reduce it a bit.
RBI Governors both YV Reddy and Mr. Subba Rao have held the economy together despite immense pressure to be populistic. Your views on this pls Asked by: Narayan
I agree. Both gentlemen have been wise leaders who have restrianed the govt from excesses on several policies. Without Reddy Indian companeis may have been deeply in debt to foreign lenders. Dolalr may have gone to 100 rupees. Dr Subbarao too is doing his bit to pressure the govt to cut wasteful spending.
Why in India , there is so much an eye on credit policy, but hardly any media attention on correcting the supply side factors , so that people have the better idea of the whole situation related to inflation . Asked by: gauri shankar
I agree we need to pay a lot of attention to supply side. But we do. Media is reporting on infrastructure power, coal and such issues all the time. All those are supply side issues. Media looks at credip policy only 8 tiems a year.Supply side issues are in the limelight everyday
Why is that after increase in price of diesel or LPG whether after few months, deficit of PSUs only rises so what is the guarantee that after putting cap on cylinders govt would after few months at time of elections when it will need funds will say it is having 1000 rupees loss per cylinder or 50 rupees loss per litre of diesel Asked by: Rij
The govt doesn't give out any whimsical number as subsidy. It can be transparently calculated.
any steps you think that will be appropriate to reduce price rise and inflitation Asked by: Subodh Deshpande
All long term boring steps. Encourage agriculture. concentrate on providing water, roads, power to every village.Poeple will automatically become more productive. Higher productivity lwoers prices. But all this is easier said.
Will the FDI in retail attract enough investments which govt is expecting as most of these companies already exist in India in back end operations and are working with Indian partners so instead of bringing investments they might capitalize on know how and market of Indian partners to increase their share Asked by: hitesh
Yes. But they wills till ahve to bring in some money
RBI has done a creditable job till now shielding our economy from global recessions. But has it done enough for the Rupee downfall in the last year or so? With this change in CRR, do you think SBI chief would be happy now? What is the way forward for decreasing our Govt expenses? Asked by: Karthik
God that's a lot of questions: 1. RBI may not want to strenghten rupee too much. The people wills tart improting goods instead of buyign Indian goods, because a cheap dollar makes importslook cheap. 2. Yes the SVI chief said he is happy with CRR cut 3.Decreasing govt expenses means improving efficiency, avoiding waste and cutting subsidies...all tough steps.
With India importing 80% of oil do you feel that in future OPEC will be calling the shots as Indian production from KG Basin is not going to be upto expectation Asked by: Rij
OPEC has been calling the shots for a long time now
Do you see fuel price hike leading inflationary pressure which may further delay India's growth trajectory (due to high interest rates)? Asked by: Jigar
RBI wont raise rates simply because dieselk prices have been raised. Yes higher diesel can make otehr products expensive due to higher transport cost. This can lead to people asking for higher wages which will inturn make prices go up further
why are companies so desperate for a rate cut when that could lead to a fiscally irresponsible GOI borrowing more money crowding out private companies Asked by: chinmay
Cos are desperate for a cut because all of them have big intrest outgos.
Reducing CRR will induce 17K Cr liquidity in the system.Now how would RBI see Inflation to be under control considering approx 1% inflation hike would come from diesel price hike> Asked by: Inder
RBI is aware hikein diesel prices will led to a rise in prices. It is betting that when people pay the right price for diesel, they will use it wisely.
by cutting CRR by 25 bps..is it really not going to help banks ! Asked by: Subodh Deshpande
CRR cut helps banks
Reduction of CRR by few points may lead to further inflation which would hurt common man as Govt and FM are more concerned about GDP and statistics which can be deceptive rather than fundamentals of economy. Asked by: Manav
No no, inflation worries the govt, the Pm, the FM.everbody.