While the government has been talking of substantial investments in infrastructure in the last two budgets, in practice there has been very little investment in infrastructure which could lead to economic recovery.

The country generates enough savings but the savings garnered by banks as deposits are not being utilised for productive investment. A large part of it is used to finance the budgetary deficit of the government. Monetary policy can, therefore, definitely play a very important role in boosting infrastructure expenditure. If I were the RBI governor, I would look at the following measures:

Housing finance: Housing finance should be relaxedand be considered as first priority lending. Housing finance should be offered at a maximum interest rate of 10 per cent and the term of the loan could be as long as 25 years. Such finance advanced by banks should be exempt from SLR and CRR so that the banks do not effectively have to subsidise the interest on housing finance.

The major industry where private sector investment can come in a big way is housing and with increased savings in the rural and urban sector, it is necessary to channelise this savings into housing construction. At present, family savings in most cases are inadequate to finance the entire requirement of housing; the availability of finance at high rates of interest from banks or institutions acts as a deterrent to borrowings.

The method of extending housing finance also needs to be made easy and perhaps the RBI needs to coordinate with various state governments and the central government for getting adequate security for advances made in the housing sector.

Investment inequities: Investment in equities should be considered as investment in the priority sector. Banks should be under an obligation to invest at least one per cent of their deposits directly or indirectly in the equity market. In order to ensure that these investments are made in desirable stocks, the banks could invest the same in the following manner:
If the banks have to invest directly, investment should be made only in Sensex securities and in the proportion of their weightage in the Sensex. In other words, the investment could be made as an `Index Fund'. This will ensure that there is no hesitation in taking investment decisions.

Alternatively, banks should be permitted to invest in any equity mutual fund recognised by the Securities & Exchange Board of India. However, investment in any one such fund would not exceed five per cent of the total investment, excepting in the case of the UTI, where the total investment could be up to 25 per cent of the total investment in equities.

Interestrates: I would like to proceed with a further lowering of interest rates by 50 basis points to 1 per cent across the board. Since inflation has been running at five per cent for long time, I feel that a maximum cap of 10 per cent should be kept on yields on government securities. A beginning has to be made in reducing the interest rate on government securities to give a clear indication to the market that the RBI is confident about the inflation rate while at the same time helping the centre to bring down its deficit on a long term basis.

I am afraid that we are moving towards a debt trap and one of the effective tools to save us from it is a reduction in interest rates on government securities.

Offtake of credit from industries is not improving fast enough and high interest rates are one of the reasons for it. I, therefore, feel that the prime lending rate should be brought own by 50 basis points to 1 per cent.

Reserve ratios: I would like to carry on with the recent cut in CRR at least byhalf a percentage point. I believe that further monetary easing will stimulate growth. This understanding and belief is based on two facts: inflation is under control and M3 growth up to 18-18.5 per cent is unlikely to fuel a price rise.

Finance to knowledge sector: In the last few years, knowledge sectors like software, health, education and other professional sectors and service sectors like broking have been growing at a much faster rate than the average GDP growth. The RBI needs to look at these sectors in a more pragmatic manner and lay down liberal norms to provide finance to them. Many of these sectors are not entitled to get working capital finance as of now.

A proactive and constructive approach for making finance available to the knowledge sector will stimulate growth. Our country's biggest strength is a huge pool of technical and professional people and this could be best utilised by extending support to these sectors by making finance available to them for their needs.

Exchangerate: I believe that there is a need for the exchange rate to depreciate gradually to maintain export competitiveness. If the rupee depreciates by 4-5 per cent per year, it may be good for the economy at least for a few more years till the competitive strength of industry increases as a result of technological upgradation, restructuring of businesses and increasing the capacity levels of existing industries.

Electronic fund transfer: Though directly not part of credit policy, the key reform the RBI needs to put forward is EFT in the country. Many smaller and much less developed countries than India have been able to effectively introduce EFT systems. Unless EFT is introduced throughout the country, the efficiency of money movement in the entire business sector gets adversely affected. Besides, it would be difficult to introduce reforms like stock derivatives and rolling settlements in the stock market till EFT systems are well established.

Debt trade in government securities: There is animmediate need to commence debt trading of government securities in the retail market. Most leading exchanges -- namely, Bombay Stock Exchange, National Stock Exchange, Calcutta Stock Exchange and Delhi Stock Exchange-have already established their networks throughout the country and with two depositories -- CDSIL and NSDL -- it should be possible to have retail trading in government securities in demat form. This will not only help mobilisation of savings but would also lead to a reduction in the cost of government borrowings.