On the economic front, the policy does give an indication of continuing sluggish conditions and no one possibly can disagree on that.

It has announced a series of measures to reflect realistic health of the commercial banks, which again is a step in the right direction. It will be in the interest of all concerned including banks themselves that the real financial position is reflected and that the same is done, as soon as possible. The RBI governor should be applauded for assigning risk weightage to government guaranteed advances. Increase in capital adequacy is again a good measure.

So far ascorporates are concerned, the major points affecting them are Reserve Bank's intent to ensure more and more stability in foreign exchange market and avoid speculative instability and the threat that tight money could be followed if the inflation rate rises. The first part is good and should give comfort to the corporates against losses due to speculative acts, particularly in our forex market which does not have depth. Tight money policy means hardening of interest rate.

This could be counter-productive as in a recessionary situation, it could mean a further slide.

There are measures like interest rate swaps and intention to develop interbank reference rate. It will be helpful in giving depth to the money market.

In a couple of its last policy announcements, the RBI has been taking steps to free control on dispension of credit and more things are left to the decision of banks, which is a healthy sign. This should have been continued. There should be steps or advice to the bank for quick assessment ofcredit requirements, sanction of limit and disbursement. This even now takes a very long time. Under the new system of disbursing large part of credit for working capital as demand loan, there is a need to absolutely free the system from regulation. The period of credit (which could even be one day) and the rate of interest should be absolutely at the discretion of the banks.

Mr. D.D. Rathi

The author is senior president of Indian Rayon