ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Shortening the Rope

THE arrival of the busy season has caught the Reserve Bank without a policy or even a view of the economic situation during the next six months. The outlook for the kharif crop is uncertain though late rains during the last two or three weeks have staved off a near-disaster in foodgrains at any rate. Commercial crops, i e, jute, cotton and groundnut, will, however, be definitely 20 to 30 per cent less than expected some months back. Drying up of foreign aid in the pipeline will further strain the balance of payments as holders of import licences rush to cash them. Prices have been rising again over the last three months, thanks partly to the easier money policy initiated by the Reserve Bank earlier this yean The ratio of bank credit to bank deposits is higher than it was at this time last year and outstanding bank borrowings from the Reserve Bank are also much higher; these higher levels are attributable only in part to advances and RBI refinancing for food procurement. The absence of a clear definition of priority sectors has given an impetus to the expansion of bank credit without a corresponding increase in bank resources. Unless the monetary reins are tightened immediately, the price situation is likely to get out of hand again.

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