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

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Fiscal Turnaround

Moderate market borrowing relative to the budgetary target and consistently modest use of ways and means advances from the RBI point to an impressive turnaround in the central government's fiscal position in the current year.

Little Scope for Lower Lending Rates

While commercial bank lending rates were undoubtedly high till March 1999, the scope for any significant reduction in them below their current levels is small as banks' margins have been squeezed by their cost of funds, transaction costs and burden of nonperforming assets as also by non-bank competition.

Critique of Single Target, Single Instrument Approach

The Reserve Bank governor's critique of current fashions in central banking, contained in his introductory remarks at the recent C D Deshmukh memorial lecture by Charles Goodhart, provides significant pointers to the working of the Indian financial system

Perils of the Soft Option

The history of India's sovereign commercial borrowings in the post-reform period shows how the government has been resorting to soft options with deleterious long-term consequences. The latest five-year India Millennium Deposit represents another such exercise.

Bank Credit and the Economy

The role of bank credit and its distribution in mitigating the current macroeconomic malaise needs better recognition. Historical studies of the income-elasticity of demand for credit suggest that a sustained nominal bank credit expansion of 16 to 20 per cent, together with its proper distribution, is called for.

Exchange Rate Management

Development on the exchange rate front and the Reserve Bank of India's response to them have raised the issue of the basic approach to exchange rate management. The RBI seems to be falling between the two stools of liberalisation and of fighting expectations and curbing speculation.

LAF Exposes Money Market Fault Lines

The liquidity adjustment facility introduced by the Reserve Bank comprising variable rate repo and reverse repo auctions has already exposed the imperfections of the Indian money market.

Portents of a Difficult Situation

The indications, currently visible, of liquidity strain and of pressure on short-term interest rates portend a difficult financial scene in the months to come.

Towards a Full-Fledged Liquidity Adjustment Facility

The measures undertaken by the Reserve Bank to strengthen indirect instruments of monetary control raise two crucial issues: first, the macro perspective embedded in the structural measures and, second, the operational implications of moving to a marketdetermined liquidity adjustment facility.

Interest Rate Disjunctions

The liquidity support required from the Reserve Bank to sustain the reduced levels of Bank rate and repo rate may turn out to be large as there may arise a notable disjunction between these two rates and the call money rate. One probable answer might be to further reduce the cash reserve ratio and release more liquidity into the system.

Government Securities Dominate Market

Operations in government securities have overwhelmingly dominated both the primary and secondary markets to the neglect of primary lending for productive purposes. The Budget for 2000- 2001 promises no change in this situation.

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