The statements on the current level of fiscal deficit, need for improving fiscal discipline at the governmental level, its concerns on inflation, need to maintain stability on the external front, difficult state of affairs in the real sector, fragility of the financial sector and the need to continue innovation in the marketplace are well-directed, well-composed and real concerns that exist in the system. It is indeed creditable that the RBI has chosen to openly discuss these sensitive issues and is attempting to formulate a policy to try and tackle them.

It would be a healthy debate as to whether the time frames indicated in the policy to strengthencapitalisation, disclosure norms, risk weighting of various assets and upgrading risk management systems in the financial sector are too long and need to be shortened. May be it would be a good idea to keep some flexibility of introducing some of these measures earlier than the indicated time frame should situation so warrant. The stance is very clear in expressing its concerns on inflation and has threatened to adopt a tight monetary policy in case there is any further slippage in the fiscal deficit. That would indicate mounting pressure on interest rate in the second half of this year as the general consensus appears to be that the government may not be able to contain fiscal deficit.

The energy and enthusiasm shown to invigorate money market and G-Sec market, including policy statements on interest rates swaps introduction, removing minimum period restriction for repose and uniform price auction method for 91-day treasurable will be welcomed by treasuries of banks and other markets.

The RBI has in thepast shown great effectiveness in fulfilling its promise as witnessed by its action on the stabilisation front, open market operations on repo rates and in maintaining a fair degree of stability on the short-term interest rate. I, for one, take this policy very seriously and believe that the RBI would act in a manner stated in the policy.

R Ravimohan, managing director, Credit Rating Information Services of India Ltd.