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October 29, 1999
Jalan scales down GDP growth estimate to 6-6.5 pc, eases FDI norms
Reserve Bank of India governor Dr Bimal Jalan today scaled down his estimate on the growth of gross domestic product or GDP for the current financial year to 6-6.5 per cent from his earlier April forecast of 6.5-7.0 per cent.
Addressing a media conference after unveiling the mid-term Monetary and Credit Policy for the year, Dr Jalan said that assuming a greater momentum in industrial production during the rest of the year and no unexpected setback on the agricultural front, growth in GDP in the current year was likely to be in the range of 6-6.5 per cent consistent with the range of 6 to 7 per cent indicated in April this year.
Describing the macro-economic, monetary and price situations as favourable, the governor said that the one percentage point cut in cash reserve ratio or CRR was aimed at providing comfortable liquidity conditions in the banking system, check the upward movement of interest rates and provide freedom to the banks to restructure their lending rates to commercial borrowers.
The CRR reduction along with the withdrawal of incremental CRR of 10 per cent on FCNR (B) (foreign currency non resident Indian -- banking) deposits would provide lendable resources to the tune of Rs 80.60 billion to the banks, he stressed.
Jalan emphasised simplification of procedures and elimination of delays for foreign investors and Non Resident Indians and improvement in credit delivery to exporters and other important sectors. He announced that authorised dealers and banks may grant rupee loans and overdrafts facility in India to NRIs against the security of shares, debentures and immovable properties held by such persons.
The RBI also provided general permission to Indian companies for issuing non-convertible debentures by way of public issue to NRIs and Overseas Corporate Bodies on repartriation basis. Authorised dealers were also delegated powers to permit portfolio investment by NRIs and OCBs in shares and debentures.
With this simplification, Jalan said that in respect of all cases of foreign direct investments which were in line with the government policy, case-by-case approval of the RBI was no longer required.
Jalan put the growth in exports in dollar terms in the first five months of the current fiscal year at 4.6 per cent. He said that the current account deficit in 1999-2000 would still be below two per cent of the GDP, in view of the encouraging developments in respect of invisibles, particularly private remittances and software exports.
However, he expressed concern over the effect of increase in oil prices.
On monetary management, he stressed the need for determined action to increase revenue earnings, reduce deficits in the public sector and cut expenditure through appropriate policy actions.
It is imperative that necessary actions to correct fiscal distortions are taken as early as possible since a growing number of international agencies and investors keep a close watch on emerging trends in government finances, he pointed out.
Referring to the trends in monetary aggregates, the governor said that the projected order of monetary expansion of 15.5-16.0 per cent as indicated in the first half policy announced in April, appeared reasonable. The inflation rate for the current year as a whole is likely to be less than 4.8 per cent recorded in the previous year.
In Business Standard: Interview with Bimal Jalan
Full text of RBI Governor Bimal Jalan's policy statement
RBI's Credit and Monetary Policy 1999-2000
RBI's Credit and Monetary Policy 1998-1999
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