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

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Defence A Socio-Economic Problem

of 'productive' activity. If the rates for organised trade or industry are jacked up to say 30 per cent because some sectors therein earn as high as 100 per cent return, the activities will still remain profitable and thus continue while others, though 'productive', may have to shut down. It is doubtful if selective increase for a particular branch of a given sector, e g, textiles within 'Industry', can get over this problem. It is just possible that if interest cost goes up beyond a point, textile mills will step up the production of superfine cloth in preference to the coarse variety because the rate of return on the latter is no longer remunerative. To expect that the rate structure can be adjusted so neatly as to leave certain lines of production within each sub-sector unaffected, while effectively netting the surpluses from others is to place too heavy a reliance on the manoeuvrability and efficacy of monetary instruments. These objections would apply a fortiori to a hike in lending rates of the magnitude suggested by Boswel.4 There may be room for pushing up the interest structure generally but a decision in that regard should be based on considerations of the major aims of monetary policy, and market trends as well as profit maximisation of the banks and not the narrow requirements of a specific subsidy.

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