ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Blurring of Development Goals in Refinancing

The acute liquidity shortage occasioned by the Rs 32,000 crore redemption of India Millennium Deposits last December raises the larger question of the need for the RBI to be ready to inject funds into the banking system through sector-specific refinance facilities so that banks are encouraged to lend in favour of needy sectors - agriculture, small-scale industries, and other small borrowers. If the injection of massive liquidity by the central bank of the country is unrelated to broader developmental goals, the end result could only be a highly distorted one, as has been happening during the past few years: multiple layers of secondary market transactions unrelated to the development of the real sector.

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