World Bank Loan

This is with  reference to the article Why India does not need the World Bank loan( Business Line dt 7/10/09). The author has rightly argued why our Public Sector Banks do not require the World Bank Loan. It is true that our Public Sector Banks which have been capitalized more than the regulatory requirements and the international standards( as per Basel II norms) and which are financially sound should not have been clubbed along with India Infrastructure Company Ltd and Power Grid Corporation Of India to justify raising of loans from the world .

To support the economic growth envisaged at around 8 per cent and above, the banking system needs capital base and this has to be and can be easily found internally. As it is, the liquidity is very high in the system and the credit off take has not been at the desired / expected level and banks are finding it difficult to reduce the intake of deposits by reducing interest rates further because of better rates offered under Governments savings schemes. The lending rates have not gone down and are not likely to go down further because of inflation expectations.

Besides, with very high demand for funds from the Government sector owing to huge fiscal deficit the chances of reducing interest rates by banks and creating credit off take are remote. In addition, the level of raising non performing loans will automatically put a check on banks to expand credit.

In this back ground, there is no urgent need for banks to expand their capital base and that too from an outside international agency. There are umpteen ways banks can raise resources from both domestic and international market at very competitive rates on their own merit and strength and that is what the Government should encourage. This is the message we have to give to the International Financial system in general and international financial institutions like The World Bank in particular.

(This appeared in Business Line 13/10/09)

Dr.T.V.Gopalakrishnan

Forex Inflows

This refers to your edit Its yesterday once more (ET.10/09/09).No doubt our present economic scenario requires huge funds to support economic growth and minimise the consequences of fiscal deficit of very high order.The heavy inflows of forex resources beyond the absorbing capacity of the economy can tilt the calculations and bring disorder in exchange rate stability,inflation control,export, import and management of the economy.
The only way to tackle the influx is to absorb the excess funds without simultaneously creating supply of rupees in a separate account styled Foreign Exchange Inflows Stabilisation Fund with RBI. Banks, exporters, investors who ever have excess forex and do not require urgently can invest such excesses in this Fund for a small compensation and an incentive if required. Such a fund if created and encouraged even if at a small cost to the exchequer will obviate the need for immediate conversion of forex into rupees and consequent measures of steririsation etc.

This write-up appeared in ET dt12/10/09.


Dr.T.V.Gopalakrishnan

Legal Reforms -Long Overdue

Kudos to Law Minister to have come out with plans to introduce legal reform and bring speedy justice for the benefit of public.

This has been long overdue and should have been there along with economic reforms.The full benefit of economic reforms so far introduced have not been reflecting in the economy because of legal hurdles and it is a boon for public that with the announcement of time bound delivery of justice and disposal of pending cases running into crores and for years,things will improve and benefit the economy considerably in all segments particularly in infrastructure, agriculture ,finance and industrial production.

This will give a boost to the sagging morale of entrepreneurs and make them venture into more economic activities. Projects kept pending under various stages because of legal disputes, have affected our economic growth very badly.If the disputes get settled early with this proposed legal reforms, the economy can recover fast and will bring all round confidence and prospirity. Legal reform is one area needing urgent attention and it deserves all support and encouragement from everywhere.

Dr.T.V.Gopalakrishnan