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

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More of the Same

IN his statement setting out the monetary policy for 1996-97 in general and for the first half of the year in particular, the RBI governor has made a laboured attempt to explain the developments in 1995-96 which he describes as "unusual thus far in Indian monetary experience". Unusual or not, these developments certainly served to expose the problems with the monetary authority's current policy framework. With so many factors supply side undercurrents, price regulation, external sector Hows, the fiscal stance and demand management policies in operation, it is usually difficult to disentangle the harm caused by financial and monetary policies in terms of lost real sector growth opportunities. In this sense the 1995-96 experience has been unusual because many of the ill-effects of these policies have stood out conspicuously. There have been distinct signs of deceleration of industrial growth because of acute shortage of liquidity and high interest rates which have begun to jeopardise the viability of many large projects in public and private sectors alike. What has been clear also is that because of these repercussions, the RBI has been forced to act contrary to its own precepts in a variety of ways: making available large credit to the government and the hanking system, reducing the cash reserve ratio (CRR) and intervening in the money and the foreign exchange markets.

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