In such a scenario, one would look towards the Reserve Bank to consolidate further the `feel-good factor' and facilitate the process of economic recovery through measures aimed at having an immediate impact.

A major issue in this context is the level of interest rates prevailing in the economy which has a direct impact on the cost of funds available for investments, and hence on the viability of projects.

During a period of economic upturn, lower interest rates lead to larger investments and growth. In the aftermath of the crisis, the East Asian economies had experienced very high levels of nominal interest rates and inflation. Subsequently, economies like South Korea, Philippines and Thailand boldly and aggressively reduced interest rates. The strategy succeeded and these countries have been on the recovery path.

In India, however, reduction in nominal interest rates has not been aggressive, despite a substantial reduction in inflation over last 12 months. There is a need to re-look at the interest rate policy.

With industrial revival having already begun, increased credit demand in the second half of the current fiscal year is likely. Though the government has completed over 80 per cent of its planned market borrowing, expenditure overruns may compel the government to exceed the budgeted market borrowing levels. This would result in increased pressure on interest rates. The Reserve Bank should, therefore, ensure sufficient liquidity in the system at any time. In addition, the Reserve bank should signal lower interest rates either through a cut in the bank rate or by lowering the yields on various securities in its open market operations.

Another key area that the credit policy at the start of the new millennium should focus on, is facilitating the role of technology as an enabler for the financial market. With the advances in information technology and the rapid decrease in the cost of accessing information, it has now become easier to work on a near-real time basis and thereby operate over a wide variety of product markets. Technology can enable a financial intermediary to offer the complete range of products on multiple platforms and provide a paradigm shift in delivery of service to individual. Adoption of new technology not only adds to the `speed capital' of the financial intermediary, but also enhances risk management capabilities and increases the productivity of human capital engaged in providing these services.

The experience of new banks in other emerging markets have clearly shown that it is possible to penetrate the retail market and gain substantial market share through effective use of technology. The `brick & mortar' concept of banking should give way to `click & brick' approach with more of `clicks' and less of `bricks'. The economic climate would continue to provoke innovation and creative response in terms of new products to meet changing needs would ultimately distinguish successful players from the rest. While tomorrow's products and processes are certainly going to be even more different from those prevailing today, regulation needs to be ahead of this different tomorrow. The credit policy should focus on incentivising the use of technology and the Reserve Bank should signal this in the coming credit policy.

The economies of scale and scope that can be reached with new technology would dramatically reduce the cost of intermediation and create a more efficient financial system.