The prudence of raising CRR in context of industrial growth in India Shahid Colonel Shabbar*, Dr Gajapathy V** *M-Tech, MBA (Pune), Fie (I) Combat Vehicle Research and Development Establishment, Chennai, Tamilnadu, India **Senior Professor, VTB School, VEL Tech Technological University, Chennai, Tamilnadu, India Online published on 9 October, 2014. Abstract Inflation and Industrial growth are the two important aspects of an economy specially a developing economy like India. It may not be incorrect to say that inflation and industrial growth are the two sides of the same coin. Inflation reduces the purchasing power of people which in turn contracts demand forcing industries to reduce production and thus hurting their growth. For the monetary policy makers like Reserve Bank of India, the immediate and most effective tool to rein in inflation is by raising the CRR. While it has been established that raising CRR tames inflation and has an insignificant effect on Industrial production in the short term, the fear of sucking out liquidity from the market and hurting industrial growth in the long term is real. This research paper is an attempt to study the effect of variation in CRR on industrial growth and validate the prudence of raising CRR in context of industrial growth in India. the results of the study over a period from 2005 to 2014 reveal that increasing CRR does in fact hurt industrial growth when seen over periods extending beyond 180 days and it may not be prudent to raise CRR consistently in order to control inflation. The study is expected to aid policy makers in determining the magnitude of damage caused to the industry in their endeavor to control inflation by raising CRR and look towards alternate means to tackle inflation. Top Index Terms CRR, Fiscal policy, Monetary policies, Inflation, CRR, Industrial growth, Monetary tools. Top |