RBI’s Recent Cut in SLR May be Rendered Ineffective in Long Run

RBI’s recent move to cut SLR to 23% instead of much anticipated cut in interest rate may have been a cause of great disappointment for industries which had been eagerly eyeing it. According to RBI, interest rate has not been slashed due to persistently high inflation while reduction in SLR rate is likely increase liquidity in the system and helps in improving credit availability to productive sectors, as can be inferred from the recent revision in the priority sector lending guidelines by RBI. According to these guidelines, credit availability has been increased for agro and food processing, education, housing projects for economically poor section and others. Other than this foreign banks having more than 20 branches in the country have to adhere to priority sector lending requirement which can be expected to improve credit accessibility of sectors.

But the argument is these cuts can be a saving grace in short run but what about in the long run, which all our authorities failed to take stock. It is important for all of us to understand that our government is primarily responsible for the present ominous situation and stating that Indian economy is also being slow down due to sluggish global economy is incorrect to an extent because India is not an export driven economy but is rather driven by the strong presence of domestic demand. Government, instead of putting its acts together to address supply side bottlenecks; creation of new infrastructure keeping in mind the projected growth in population and vehicular traffic and implementation of desired policy reforms, have put all of these on the back burner. All their effort and energy is being used just to please their coalition partners and meeting their vested interests. Not mindful of the fact that their decisions have and are hampering the national development and has refrained private players from investing in India. Almost all ministers are supporting policies which can help in flourishing their own business. This I could say because in the recent past, most of the politicians are running parallel businesses as well and hence expecting them to bring some radical changes should not be expected. For example, government is cribbing about the burgeoning oil imports and hence, current account deficit, but have they ever thought that their lack of action to promote better public transportation system in the country could not only improve the traffic congestion, ensure sustainable use of natural resources, bring down pollution level and unwarranted stress that each of us is going through without even realizing its knock on our health, personal and professional life.

Hence, I would only like to submit that in the short run these rate cuts by RBI may help our economy to revive but in the long run these actions will lead to great irreparable devastation. Hence, we all must wake up and take rational decision that shall promote the interest of all of us rather than just hand full of people.