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 .

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