Encouraging Monetary Moves to Revive NRI Investments

Experts are expecting a slew of measures to control inflation further and the steps taken by the RBI so far have improved market sentiment to a large extent.

Indian companies are faring well, and better placed to take
on more debt, and any further hike in interest rates would mar
their profitability and deprive them of much needed credit, especially
in the case of the infrastructure business which banks on heavy
capital.

The move to raise the growth level for non-food credit to 24
to 25% recognises the fact that the demand for credit by corporates
would not improve. Instead of restricting the external borrowing,
the Reserve Bank has resorted to measures that would encourage
dollar outflows.

The move to allow Indian companies to invest overseas upto thrice
their net worth and permitting a higher investment portfolio
overseas of 35% has also been greeted by Indian industry. These
encouraging measures would enable overseas expansion by Indian
companies.

However, bringing down interest rates on NRI deposits may dampen NRI investments in India marginally, and affect the liquidity
in the banking system, leading to a scramble for NRI funds amongst
banks.

It is the economist’s fervent hope that this is just a transitory phase, as improved business investment is expected by mid-2007, with a positive financing gap, higher profits, low debt ratios, active cash flow and low real interest rates falling in place.

The recent announcement from RBI on reducing the risk weightage
on home loans below Rs. 20 lakh means that small loans are not
a threat to the economy at large .

Photo: Skyscrapers, Santa Fe business district, Mexico City (5 July 2006) by Yunus Üstünol, licensed under CC BY-SA 3.0, via Wikimedia Commons.