More liquidity to be infused soon; FM allays fears of depositors - IV

Mr Chidambaram said; "This is a time of uncertainty. Yet, even in a time of uncertainty there are some facts that cannot be and ought not to be ignored."
The Finance Minister said the stock market indices are important indicators, but they are not the only indicators of the health of the Indian economy.
The ratio of investment to GDP remains high at over 35 per cent at the end of the first quarter of 2008-09. The monsoon has been normal the Kharif crop, especially rice and cotton, has been good farmers are sowing their fields; and the prospects for the Rabi crop are bright. Factories continue to produce goods and the services sector is growing at a "brisk rate."
Mr Chidambaram said crude oil and commodity prices have declined sharply. This was expected to have a beneficial effect on inflation.
He said the root cause of the present uncertainty is liquidity and not any dramatic change in the fundamentals of the economy. The Finance Minister cited figures by the RBI to show that as on 26th September, 2008, non-food credit increased, year-on-year, by 24.8 per cent.
Between April and 26th September, non-food credit grew by 7.8 per
cent. Time and demand deposits with banks grew, year-on-year, by 18.8 per cent and, between April and 26th September by 7.2 per cent.
"I am happy that depositors continue to repose their confidence in the health of our banking system,''he said.
Mr Chidambaram said some lenders and investors faced redemption pressures leading to a sale of assets, especially stocks.
"The markets that are bearing the brunt of the problem are the capital market and the money market and, to an extent, the foreign exchange market. These problems can be overcome if adequate liquidity is infused into the syste,'' he said.
Accordingly, Mr Chidambaram said, RBI has taken measures that have infused an additional Rs 60,000 crore into the financial system.
The Liquidty Adjustment Facility(LAF) also provides liquidity and, as on October 10, 2008, Rs.91,500 crore has been accessed by banks through the LAF window. ''We believe that these steps should ease the liquidity situation and the flow of credit should become smoother, relieving the pressures that had built up in the last two weeks,'' he said.