Policy not backed by conviction but by Compulsion

The article is well written.RBI has reduced the policy rates compromising on its own conviction that inflation is still not under control and there is suppression of inflation.In this policy review what one can read is that at any cost reduction has to be given and accordingly language has been beautifully twisted.It is very clear from the wordings that the need to support growth and revive the confidence of investors can happen only if RBI relaxes the rates although there is absolutely no room for that.The reduction has been effected to please the market and the govt. This has been done cleverly mixing up the macro economic factors and suitably justifying the predetermined policy.The impact can be felt in the days to come Liquidity cannot improve unless the banks raise deposits which can happen only if inflation is brought under control. Growth can happen only if the investment environment is made conducive.Investment can happen only the confidence in the economy is revived by Govt. 

  Dr.T.V.gopalakrishnan

(This is in response to an article Wrong diagnosis and bad prescription in Business Line dated 30/01/13)

RBI should maintain statusquo on policy rates and its operational autonomy.

The author has argued well to avoid any rate cut by the RBI.The measures if any taken by the Govt on the economic reforms front will bear fruit only after a considerable time lag and RBI should not factor those measures to effect any reduction in the policy rate. Inflation, measured by CPI which is indicative of the price movements in respect of items consumed by the masses,has been moving from bad to worse and the position would further worsen with the recent partial deregulation of oil and gas prices.The railway fares have been steeply increased although justifiable from the point of view of improving railway finances, it will have its own cascading effect on the prices.The common man gets no relief from the Govt but RBI can come to his rescue to some extent by giving a signal to all that RBI is for price stability as mandated in the preamble of the RBI Act. The governor draws his power from the Act and he can ensure to maintain operational autonomy by his actions.RBI can do it.




Dr.T.V.Gopalakrishnan

Posted on: Jan 27, 2013 at 22:42 IST in response to an article on'Rate Cut advocates are wrong' in Business line dated 28/1/13.

The strong Regulatory system

A good decision. The regulatory environment is tougher than US and no foreign investors would like to take any chance at least in banking.  Dr .T.V. Gopalakrishnan  (This comment appeared in Economic Times in response to an article Morgan stanly to quit india due to strict rules and regulation dated 26/1/13)

Dependable Indian Banks

The credit goes to the RESERVE BANK OF INDIA. Despite pressures from the Govt RBI maintains operational autonomy and ensures that the banking system adheres to the regulatory prescriptions.  The banking  system  can  can do better provided the borrowers could be disciplined a little more and NPAs are brought under manageable levels or fully liquidated through some inbuilt mechanism . This is possible and RBI has to be a little bold to to take the initiative.  Dr.T.V.Gopalakrishnan This comment appeared in Economic times in response to a write up Indian Banks can be trusted A survey in Economic Times dated 26/1/13

Containing inflation will solve major problems of the economy

Will the RBI Dy Governor contradict this article which has come out clealy that investments in gold is to hedge against inflation. The economy today is in a precarious condition due to persisting inflation and without controllintg it nothing can be achieved. It has taken away the ethics ,values morale and social harmony in the society and given rise to aggressive pricing of goods and services by all including the govt thereby letting loose a semblance of anarchy in the management of the economy.Pre liberalisation conditions were much better and things were under control.Now the economy seems to have lost its focus and there is neither growth nor equitable distribution of wealth.The system of Governance has been missing every where and the economy is in a mess where the Gold is the only safe way of investment to protect what ever is left.Time the authorities both the RBI and the Govt sit togother and analyse the mistakes and come around to find a lasting solution to contain inflation.




 Dr.T.V.Gopalakrishnan

(This is in response to an article Gold ruling fiem to hedge inflation in Business Line dated 23/1/13)

The best way to contain gold demand

Comments:


The editorial reads well and has conveyed the message clearly to the Govt by stating that the policy makers sought to address the sysmptom andnot the cause.The attraction for gold is basically tomake better return and cover up the loss on account of inflation.Further investment of black money in gold is more safe and convenient Aslong as there are no restrictions onCash payments to acquire gold evading sales tax and other taxes,the demand for gold would continue to be inelastic to price rise and the govt's present approach may not yield any positive result.The Govt instead of increasing the customs duty, should track the source of demand for gold and take some preventive steps to accummulate gold both by individuals and instituitions.Just by insisting for payments through cheques and cards withPAN card details,the transactions can be easily tracked.Further reporting of transactions by the dealers in Gold to some centralised authorities would have some positive impact to contain demand.

Dr.T.V.Gopalakrishnan
(This comment appeared in Business Line in response to their editorial precious little logic on 23/1/12)

Justifying greatness

The problems the country faces today are complex and it is not easy for any leader to take the Country and its people forward.Mr Rahul Gandhi faces a formidable task economically, politically, socially and emotionally. The Corruption is rampant and deep rooted and the Governance in the country has been virtually absent.Ethics and Vlaues which were once the strength of the Country have been literally given a go bye and the disconnect between the Govt and the people has been widening day by day without any hope or scope to bridge the gap.The youth is impatient and everybody wants to make quick money and reach the top by hook or crook. The morale of the people is at its low ebb and who ever is the leader has to begin afresh from the scratch. Will Rahul foot the bill will have to be seen from his actions and commitments. People will have to wait and see. As it is,greatness and leadership are thrust upon him and it is for him to prove his mettle.The country has to move forward.

 

 Dr.T.V.Gopalakrishnan 

 

( This comment in response to the Editorial 'promise of the prince in the Hindu Business line appeared on 22/01/13)

Pricing pattern in the economy

This does not seem to be a solution as the Govt may increase the petrol price any time and even car prices.The customers should learn the art of making more money by hook or crook as is the practice followed both by the Govt and by all in the society ignoring the values and ethics and prudential management of the finances. This is very much reflected in the market whether it is fruits, vegetables, pulses, consumer goods ,services where pricing has been agressive without any rationale or rhyme or reason. The loot is let loose for want of any Governance system anywhere.


Dr.T.V.Gopalakrishnan This comment appeared in Times of India dated 22/1/13. in response to car customers itching towards petrol variant

remove the disconnect between the people and the Govt

The budget should focus  on the removal of the disconnect created between the people and the govt because of spiraling inflation. Th removal of fiscal deficit by augmenting revenues which are not inflationary in character and aiming growth of agriculture and industry through creation of improved infrastructure by diverting non productive expenditures should be the approach supported by effective Governance standards to prevent corruption, improve better compliance with existing tax laws  and, eliminate black money . If there is a will there is away. 

Dr.T.V.Gopalakrishnan

Investments in Gold

This statement by the Dy Governor of RBI is just to confuse the masses. Investment in gold is both for speculation and hedging against inflation. Those who have abundant black money and are insensitive to inflationary pressures invest in Gold to speculate, but those whose earnings and savings potential are limited go in for investment in gold just to hedge against inflation as the real rate of interest is negative if they save in Banks or other savings instruments.This sement of population consists of people from middle middle class and upper middle class. Poor class people have no money either to eat or invest in gold. This category has been completely getting ignored by the authorities and this category gets worst hit by persisting inflation. Persons in authorities instead of taking measures to contain speculative investments are talking something different to hide their failures to contain inflation and trying to confuse the people.This is not desirable.  Dr.T.V.gopalakrishnan

( This comment in response to the statement by the Dy Governor of RBI that investments in gold not hedge against inflation appeared in Business Line dated 21/1/13) 

The plight of the poor in India

An interesting dialogue in market place.


Perhaps Dr Subba Rao GOVERNOR, RBI is the only official who has understood the magnitude of poverty and suffering of the masses in these days of Spiraling inflation. i am forced to quote here a gist of conversation among two persons which I happened to OVERHEAR in the market place a couple of days ago. Person A apparently worried on the consequences of deregulation of diesel prices was asking his friend at this rate how the poor people can survive in this country for which the other person B quickly answered and said that the only option left to poor people is either to loot freely or die. There is no other remedy visible as of today

Dr.T.V.Gopalakrishnan

Despite Progress India's Financial sector Vulnerable

The financial system if at all is found vulnerable, it is because of the interference of the Government in the functioning of various regulators. The setting up of Financial stability development council under the Chairmanship of the FM takes away the powers enjoyed by the RBI which has done a wonderful job in securing financial stability and soundness. The interference by the Govt in the regulatory functioning of RBI is uncalled for unless the Govt has its motives to have control over the system to its advantage. The caution by the IMF from that angle is most appropriate and it is for the govt to act to make the system sound and stable for the long term benefit of the economy and its people. ( This appeared in Times of India dated 16/01/13)

Puri Sankarachary blames western Culture for rape

The loss of our culture values, ethics and civilisation has happened unfortunately with the economic liberalisation in the early 1990s. The country has economically progressed a bit but lost heavily in terms of social values particularly moral values. Education has taught to make only money left and right without any principles and moral standards. Honesty, respect for women, dignity for each other, consideration for fellow beings, sympathy, empathy,etc which were once practiced with proud have gone with the western wind perhaps and the deterioration is there for all to see. Unfortunately women suffer the worst and their empowerment has not happened in practical life. The mindset of people particularly menfolk has not expanded and the result is unbearable. ( This appeared in times of India dated 16/01/13)

RBI disagrees with IMF says regulators function independently

It is really surprising Why RBI Governor should disagree with the assessment of IMF on the independence of regulators of the Financial system. The very setting up of FSDC by the Govt is nothing but to take away the independence of the Reserve Bank in regulating the entire Financial system. Further, the Governor has directly and indirectly expressed his dissatisfaction over the Govts' interference in RBI's functioning and several reports have appeared in the press in the matter. Even the RBI which has independence to fix its own employees salary and pension has to refer to the Govt for clearance of the proposal is the position as on today. The Govt has two of its nominees in RBI Board, the need for that has not been convincingly made public. RBI and the GOVT have not been in agreement with the policies pursued by each other in the matter of controlling inflation and economic growth is a hot topic in the media for quite some time cannot be ignored by the governor.  (This appeared in ET dated 16/10/13)

Budget 2013 will outline amendments to Constitution, FM

GST should be introduced as early as possible and the FM has to ensure that the GST implementation will help to bring down the price level and inflation index. The Fiscal deficit can be wiped out comfortably if the FM can plug the loopholes in enforcing the implementation of existing laws and bring about all round efficiency in the management of the economy. The PSUs can definitely improve its finances and production by avoiding or minimising wastage of resources. The Govt should introduce a rating system for PSUs based on their contribution to national exchequer.The cost of funds has to be drastically brought down in the economy for which the Govt has to take appropriate measures to put into optimum use of the resources without any sort of wastage and enhancing productivity and efficiency by resorting to improved technology and result oriented Corporate governance mechanism. ( This appeared in Economic times dated 16/01/13).

Diesel subsidy to be cut, price of diesel to go up

Inflation control will remain a dream and people will continue to suffer from spiraling prices. Our politicians and industrialists do not want to give up anything and they want everything from the ignorant masses. For whom they are amassing power and wealth is a mystery for the masses.( This piece appeared in Times of india dated 17/10/13 ).

Food stocks overflowing but 25% of the people suffer from hunger

The administration and taxation policies are the weakest in India causing people to suffer despite availability of plenty of food and resources. Taxation policies help to make rich richer and other administrative policies make the poor to remain hungry. The middlemen get rich and the poor suffer for want of food. The distribution chain is also weak and many do not have the capacity to purchase. The Govt has tostart from the scratch to ensure efficient distribution of the availability of food products among the weakest segment of the population. (This piece appeared in Times of India dated 17/1/12)

When and where the roads of Govt and Reserve Bank will meet?

T.V. Gopalakrishnan

 

As the Government has decided to walk alone with its fiscal policy measures, the Reserve Bank also seems to have decided to walk alone for some more time with its monetary policy measures till it finds comfort level in the matter of inflation Control.

From the latest policy announcement it has been amply made clear that the RBI prefers to remain highly professional not yielding to market sentiments or the Government pressures either.

On the basis of the current macroeconomic assessment, which has not registered any perceptible change since the last review of the monetary policy, the Reserve Bank has decided to keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.25 per cent of their net demand and time liabilities; and keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent.

Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and the marginal standing facility (MSF) and the bank rate at 9.0 per cent.

By keeping the status quo on its policy rates through its third quarter monetary policy review on Dec 18, the Reserve Bank has once again shown its professionalism and determination to fight against inflation even at the cost of growth.

It can be well inferred from its policy statements all these years that low inflation will certainly pave way for sustainable growth and people at large deserve to be protected from ever spiralling inflation.

There are clear indications that the RBI is not comfortable and convinced of the inflation trend seen in the economy. Though the Wholesale Price Index and the core inflation may have a declining tendency marginally, the underlying forces continue to be a threat for inflation to register a fall according to the RBI’s assessment.

The Consumer Price Index which affects the people at large more than 80 per cent of the population has been on the rise touching 9.9 per cent and the risks to contain this are far more than what is generally perceived. It all depends on so many ifs and buts which may not come true according to the past trend. The fact that the deposit growth has not been picking up has been reflective of the poor savings potential of the masses.

While the prices of fruits and vegetables have skyrocketed and become untouchable for majority of the masses, they are also not available in plenty due to low production and supply constraints. Banana, which was available at Rs 2-3 a few months back, is costing above Rs 5 a piece. Likewise, the green vegetable, a very common item consumed by masses, has suddenly become a very high luxury and unapproachable item.

The prices of vegetables and fruits are ranging between Rs 40 and Rs 300 in retail markets.

The RBI has admitted in its policy review that both the external and domestic environment have some positive developments but their continuity and stabilisation are not convincing for initiating any relaxations in the policy rates for the present. It cannot and perhaps it does not want to, change the track and relax the policy rates as the macro economic factors have not shown any appreciable or sustainable improvements.

The current account deficit which has been in the range of 4.2 per cent of the GDP has not been in the comfort zone and the imports continue to rule at high level although the value of oil has registered a decline and the benefit of which has been nullified by depreciation of the rupee. The fiscal deficit also remains unchanged at5.3 per cent and how far the positive moves of the Government would help to bring down the deficit at sustainable level cannot perhaps be factored into by the RBI.

These ratios can only aggravate in case the GDP falls further. The GDP is forecast to be below 6 per cent this fiscal and it may take some years to touch the 9 per cent level. In this background, the RBI cannot be but cautious in its measures as once they are relaxed, they cannot be rolled back instantly.

The Growth of GDP is not in the in the hands of the Reserve Bank alone. The maximum the RBI can do is to make funds available towards investment and credit and this has not been adversely affected although the money supply and the deposit growth have come down.

The RBI cannot initiate measures to attract investors by its policies. At best, it can only supplement the measures initiated by the Government in this regard. The interest rate though an important component in the factors of production cannot be said to be deterrent as the growth in industrial production has indicated in October.

The RBI is a better judge and professionally equipped to evaluate and decide the cost of money to attract investment and from this angle inflation which inhibits and brings down the real rate of interest for investors has to be necessarily under control on a long term basis.

Last three years’ efforts of the Reserve Bank have not yielded the desirable benefits in inflation front is a sad commentary as the fiscal and administrative measures were not in tune with the monetary policy measures. However, it is gratifying to note that a sort of assurance has been held out by the Reserve Bank by saying that softening of policy rates would be considered in the last quarter commencing from January if inflation index registers a fall and measures are in place to contain the staggering fiscal deficit.

The economy can perform well only if both the Government and the RBI are on the same road and they take joint efforts mutually respecting each other’s role. Hope the roads they are presently on are not parallel.

The policies they take should meet the aspirations of the majority of the people and their welfare. Inflation which is said to be the worst enemy of the masses needs to be drastically brought down and for that the cooperation of the Government, industrialists and the administrators is very much essential. Once inflation is under control, savings will pick up, liquidity in the economy will improve, interest rate will fall, confidence in the Government and the economy will revive and investment will increase and better GDP growth will be the end result. This is what perhaps the RBI is targeting.

(The author is a Consultant in Bangalore. The views expressed are personal)

(This article was published in the Business Line print edition dated January 14, 2013)

How Wealthy persons escape Stringent KYC norms?

Dr.T.V.Gopalakrishnan (Mumbai)


 It is really a wonder as to how these sorts of accummulation of wealth  by individuals can happen in the economy where  very stringent KYC norms are insisted upon even for opening a SB account. The harassment an ordinary person undergoes to have a phone connection , a pan card, a ration card, a voter ID a gas connection with all genuine documents , has to be experienced to believe that our officials mean a serious business in implementation of KYC norms. They suspect even the genuine documents submitted even by an official who has occupied a senior position and is part of the rules making under KYC. This sort of evasion by monied persons having Crores of rupees as deposits in banks  needs to be thoroughly investigated  and loopholes adequately plugged to improve the tax collection in the economy. This will also enhance the confidence in the system that no one can escape the laws of the country under any circumstances.
(A changed version of this appeared in Times of India Dated 3/1/13)

Time to have aGold Bank

It is time to think of setting up of a gold bank under RBI.The idle gold lying in the economy can be mobilised by this gold bank and the money thus generated can be treated as Deposits.These deposits with a long term maturity can be used for investments for developing infrastructure which is very badly needed to support the sagging economy.Purchase of gold and Jewellery are by and large by black money holders and this can be easily tracked if the purchases are made against cheque or card payment with details of PAN numbers.The tendency to sell gold against hard cash without sales and service tax needs to be completely stopped to reduce the prices of gold and investments in gold. The banks should also offer a better rate of interest on deposits to take care of high level of inflation and at the same time diversion of funds to gold purchases. The IT return should call for information on Gold holdings atleast by High net worth individuals.The need to stop investments in Gold is urgent.


Dr.T.V.Gopalakrishnan
(This appeared in Business Line dated 3/1/2013)