INSUBCONTINENT EXCLUSIVE:
The Monetary Policy Committee has confined itself to the routine tinkering of rates, guided as it is by its mandate to contain inflation as
measured by the consumer price index
A reduction of the policy rate by 25 basis points is neither here nor there, when it comes to addressing the funds crunch faced by builders
and other players in the infrastructure sector, who depend on short-term financing from non-banking finance companies (NBFCs) to complete
NBFCs raise short-term money for their operations
The collapse of ILFS has shaken investor confidence in NBFCs as a class
Disruption in their funding cycle is manifesting as a solvency problem for their clients
In the absence of meaningful intervention, perfectly viable projects would go belly up for no fault of theirs
And an RBI rate cut of even 50 basis points or 100 basis points would not address this.The government has to tackle the problem by thinking
It has to channel funds to viable projects
This calls for two separate kinds of actions
One, to assess the viability of the projects at risk from disruption of their funding
Two, an agency that will inject long-term funds into these projects
TARP funds rescued a company like General Motors, besides banks
Once things stabilised and the companies were able to function in a healthy fashion, the government got out, at aprofit in most cases
The new government has the mandate to take decisive action
If the government does not have the stomach for such bold, out-of-the-box action, it could simply ask banks to give extra funds to viable
projects without bankers running the risk of going to jail for their rescue efforts.While several of the regulatory measures announced by
the Reserve Bank on Thursday are welcome, they do not help address the urgent problem that the real estate and construction industry face,
Only state action can help them
This piece appeared as an editorial opinion in the print edition of The TheIndianSubcontinent
