The overall GDP growth is estimated in the region of 6 per cent as compared to 5.1 per cent in 1997-98 with a 3 per cent growth in agricultural production and about 6.5 per cent in industrial production. Even though the GDP growth rate has come down from 6.5 per cent given in RBI's Annual Report in September, this order of GDP rate will place India as one of the few countries having such high growth, considering the global slowdown in economic activity.

The government's borrowing operations for the current year is completed to the extent of 84.9 per cent of the gross and 93.3 per cent of net borrowing. This is expected to leave a net liquidity in the banking system and hence there is no reduction in CRR for the present.

On the external front, the challenges arestill there. The south-east Asian economic crisis that appears to be coming under control during the earlier part of the year continues to be serious. The world economy as a whole continues to be faced with considerable uncertainty. Viewed against the above background, developments in respect of India, foreign exchange market has been orderly and generally satisfactory.

RBI has correctly recognised that many of the problems in the south-east Asian countries have been compounded by weak financial systems and has correctly taken measures to strengthen the Indian banking system, on the lines recommended by the second Narasimham Committee. As it is, the Indian banking system is inherently robust and does not face the kind of problems that has weakened many south-east Asian banks.

The measures announced, especially those relating to increase in the Capital Adequacy Ratio from 8 per cent to 9 per cent, stipulation of prudential risk weights for a number of financial instruments and tightening of incomerecognition and provisioning norms would further strengthen the banking system. Specifically, the stipulation of 0.25 per cent provisioning for standard assets and reduction in the time-frame for categorising sub-standard assets into doubtful assets, from the present 24 months to 18 months would strengthen the banking system. The schedule of implementation announced by RBI would give time to the banking system to adjust to the new norms.

A second thread of RBI initiatives aims at efficiency improvement in the system. For example, reduced time-frame for categorisation of doubtful debts would definitely impart some pressure on bank management to control their asset quality through a proper asset-liability management system. It also expects that banks should ensure a loan review mechanism for larger advances soon after its sanctions and continue to monitor the weaknesses developing in the account and initiating corrective measures.

The mid-term review of monetary and credit policy of RBI has come at a timewhen the economy is passing through a very uncertain phase. On the whole, this midterm review of monetary policy may prove to be a path-breaking one with a distinction between the real policy issues like system reforms and the operational issues like liquidity management being made for the first time.

(The author is IDBI's chairman and managing director)