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'I feel the economy has the potential to grow by 7 to 8 per cent'

Reserve Bank of India governor Bimal Jalan, whose first credit and monetary policy unveiled today has been hailed by industry as growth-oriented, discusses the matrix within which he put together the policy measures

On the macro economic front, the growth has been lower than what was been anticipated in the last credit policy. Inflation has been lower at 4.8 per cent as against the six per cent of that time. The money supply was 16 per cent last year, we were expecting it to be 15 to 15.5 per cent then. However, the money supply growth is 17 per cent this time. And this development came about because of the circumstances which developed in the last fortnight. So, this is the background against which we have projected next year's requirement.

In the last fortnight, there has been a 20 per cent increase in the deposit rate, with an accretion of Rs 195 billion. So, I told the bankers not to go by the financial year as a whole. For example, the Voluntary Disclosure of Income Scheme has released Rs 100 billion. So, there must be a lot of flow from that time, but we don't have details of it. We have to take this into account. And that is why it has caused easy liquidity in the market.

There is plenty of liquidity available just now, and if you notice the call money rates today, it is quoting at a low level. At present, the RBI has Rs 85 billion readily available. So there is no liquidity problem.

Inflation is at 4.8 per cent. Out of the overall macro economic situation, what we find is that the revival of industrial growth is very important today. We have assured the banks that credit is not going to be a constraint. We have also requested the banks to have credit planning on the assumption that if there is an unforeseen crisis, there should be plenty of credit for the industries.

In the policy measures itself, what we have tried to project is to make a distinction between longer term measures and short term measures. Longer term measures mean what I call the structural ties for want of a better word ,which are unlikely to be changed in the course of the year.

This involves different steps like strengthening the money market, government securities market, making certain changes in the regime and deposit rate. I am not going to go into the specific aspects of it. So, longer term measures are of structural variety which will stay during the course of the year. We don't expect them to change unless something unexpected happens. And also, in the longer term measure, we plan to go in for strengthening the market development, which is a very high priority. At present, all the longer term measures are a continuation of policies of the former RBI governor, Dr C Rangarajan's plan of last year in April and October.

The other aspect is short term measures, which I call the credit policy measure. In short term measures, CRR, bank rates, interest rates have to respond to the situation as it is evolving in the economy. Last year's experience shows that in response to certain developments, we had to change one of these things quite drastically in January, when we reversed one of the decisions. I feel that short-term responses to the money market and credit market etc should not be linked to the annual policy announcement.

So, I feel that our emphasis on the credit policy, henceforth, will be on longer term. However, it does not exclude us from announcing the short term measures. This year, for example, we have announced a reduction in bank rate by one percentage point. We have announced certain concession for exporters. So these short term measures coincide with the time, but this need not necessarily come at the time of credit policy.

The October credit policy again will be more in the nature of a review of the developments in the first six months and then talking about the projection for the next six months. There may be some short term measures. There may be decisions on some other aspect of the Khan Working Report and Narasimham Report. We will have different focuses in the October credit policy. The emphasis will be to strengthen the financial system.

On the deficit, I feel, let us wait for the budget because Finance Minister Yashwant Sinha has been quoted as saying that the fiscal deficit is 6.1 per cent and is acceptable. And, I am comfortable with the rate of inflation.

I don't want to comment on the value of rupee. I can only say that we have to keep a close monitor on the rupee.

About the stock exchange, I am unable to comment since I feel that the market is still not aware of the credit policy.

I feel the economy has the potential to grow by 7 to 8 per cent. But if you go by the Central Statistics Organisation, they say that the rate of growth is 5 per cent in 1997-98. But I feel that we should at least move to 6.5 to 7 per cent.