• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

ESTIMATORS OF ECONOMIC growth seem to be marking up by a tad the GDP growth estimates for the fiscal with every additional drop of `good rains'. The central bank has also joined the crowd with its Governor, Dr Bimal Jalan, quite sure of the earlier estimates of 6 per cent growth being exceeded by 2-3 per cent. Such a happening is in the air as some economic variables, such as inflation and forex reserves, are in shape, and the near-certainty of a good score from the farm sector can only help. But it is hard to share Dr Jalan's optimism over a forward move on reforms premised on the "manoeuvrability" the script provides. The script has always been there (even during the drought of last year) without reforms taking place.

In the last couple of months the Vajpayee Government has gone still on even the rhetoric of reforms as it faces Assembly elections in four States towards December and a general election early next year. Or is it that Dr Jalan is quite sure of the monsoon session of Parliament passing a cluster of long-pending economic Bills to free the financial and infrastructure sectors? Again, will the various State governments and the Centre ease the legal rigidities disabling agriculture? For the moment, bankers are not reporting any sustained rise in bank credit, nor is there any sustained effort to build quality assets. Introduction of fresh market instruments such as rupee options and interest rate derivatives are enabling initiatives and not recipes to lift economic activity. At least one leading nationalised bank has been offering short- and long-term loans to corporates in the place of CPs and NCDs to get round the hassle of rating these market instruments without a change in interest rates. Other banks are not amused but, then, the practice does not violate banking norms. Yet, the same facility is not extended to farming or SSI entities; not all banks have complied with the Budget diktat of a two per cent band above and below the PLR for funds to these areas. After the financial results for the year ending March 2003, it is hard to take the squeal over spreads being under pressure. The Agriculture Minister, Mr Rajnath Singh, is keen on cheap RBI credit for Nabard, when banks are shunning the latter's refinance facility with market interest rates falling below refinance quotes. Nabard can now directly lend to the farm sector but funds are not flowing as its cadre is not well-versed in weighing farm loan proposals. As a way out, it has tied up with banks to co-lend to farm projects, but the idea has not taken off.

Most, if not all, banks have failed to achieve the 18 per cent norm for agriculture advances too, with some even failing on the much-diluted 40 per cent priority sector norm. If the current trends in monsoon hold, the farm sector will need credit and 11-13 per cent interest rate tag will be necessarily usurious. In recent months, the RBI has been trying to enthuse banks to push up farm lending but has little to show. An obsession with investing in new technology and recouping NPAs cannot take the banking system far sans asset creation, and for that the rural sector is the best bet.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Exuberance unexplained

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line