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

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Monetary Measures Lack Developmental Focus

The financial crisis should give the Reserve Bank of India an opportunity to do some soulsearching about its delivery of credit. Over the years, the layers of money market transactions indulged in by low deposit-based foreign and new private sector banks have determined the interest rate structure and thus distorted the structure for the real economy, which is where the larger crisis is taking place. This distortion has been prompted by the RBI's policy of non-interference in the prime lending rate system. In the accompanying neglect of agriculture, artisanal and smallscale industry, the interest rate charged has been higher at times than the average rate for the system as a whole. It is clear that a calibrated set of central bank guidelines with rigorous enforcement is necessary to realise social goals in credit policy prescriptions, along with a strengthening of banking institutions and the establishment of a rational interest rate structure.

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