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MCCI backs use of excess liquidity in productive sectors

Star Business Report
The large volume of excess liquidity in the banking system could increase inflationary pressure in the economy unless it is utilised in productive economic activities, Metropolitan Chamber of Commerce and Industry (MCCI) has observed.
In a review of economic situation in the first quarter of fiscal year 2009-10 published yesterday, the chamber also found low demand for private sector credit as the main reason for the liquidity overhang and urged the government to promptly adopt appropriate polities before situation goes out ofcontrol.
The inflation rate has started rising again, and with no increase in real sector production, unemployment has surged, the quarterly observed saying these problems are serious enough to threaten the short-and medium-term growth prospects of the economy...".
Though average inflation in July-September quarter declined to 5.7percent from 7.2 percent in the previous quarter, point-to-point inflation rose to 4.7 percent in the quarter from 2.2 percent of the previous quarter.
Rise in food prices, however, was the primary reason behind the increase in the rate of point-to-point inflation, it observed.
Food and commodity prices, which are showing a rising trend in global market, are bound to impact domestic prices, the quarterly observed, suggesting a prudent management of excess liquidity in banks to tame inflationary pressure.
In the review, the MCCI held a high optimism about the immediate and medium term economic prospects, inspired by some positive signs mainly in production sector and in export of some manufacturing industries such as leather, footwear, home textile, frozen foods and jute goods.
It urged the government to continue its supportive monetary and fiscal policies, adopted already to retain growths of those sectors.
Terming the improved infrastructure, among
few others, as a prerequisite to a favourable investment-environment, the chamber urged the government to take power generation and gas exploration, along with the overall development of the country's physical infrastructure, as its top priority.
The MCCI also urged upon the government to give policy support for the industry and services sectors to enable them quickly recover from the adverse impact of the global recession and initiate expansion.
Though the international economic slowdown had a part in the country's present financial deceleration, MCCI viewed that inadequate supply of gas, slow growth of electricity, high bank interest rates and a host of non -economic factors including corruption are essentially endogenous constraints, which need to be removed by appropriate policy and action.
In the quarter under review, the country's economy slowed down compared to the same quarter last fiscal, when relatively a good growth had been witnessed.
Slow growth of investment in the real sectors, slower growth in consumption expenditure, and slow external demands were the main causes of the decline, according to the quarterly.
There was no harvest of rice in the July-September quarter of the current fiscal.
According to the chamber's assessment, the overall food production this fiscal may exceed last year's actual production of 32.36 million tonnes, but may slightly fall short of over 35-million tonnes target.
It did not see any immediate danger for food security, as there was a large stock of food grains with the farmers and the government.
The quarterly also signalled caution about the poor implementation of annual development plan (ADP).
Implementation of government's ADP in the quarter was only 10 percent of the total ADP allocation for the fiscal, which, according to many, was an important factor behind the slow economic growth during the quarter, the quarterly maintained.