Corporate

'It would be imprudent to take the fiscal deficit higher than 6% of GDP'

in future cannot be ruled out. But, RBI has also to see that its actions are taken up by commercial banks in the right direction. It seems RBI, commercial banks and the real sector are operating in three different silos. The reduction in policy rates has not benefitted the real economy. Commercial banks have taken the cue from RBI. They have tried to lower deposit rates and prime lending rates, but the fact is that the reduction is nowhere near what happened in policy rates. That is because commercial banks are locked in deposits with higher interest rates. Any reduction in rates can happen only in new deposits. I think now the banks will be able to lower lending rates. Do you think the current economic crisis gives an opportunity to initiate reforms? Will this lead to more regulatory powers? The crisis has opened the eyes of regulators in the western world. It has been a regulatory failure of two types. First, some segments of financial markets were loosely regulated. The regulatory framework should apply to all segments of the financial market. The second failure was imprudent understanding of financial innovation by the regulators. In India, to some extent, the regulatory framework has moved into almost every segment of the market. We really need to look into the framework and see that all segments of the market are supervised by one authority or a regulator.

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