Budget politically oriented one with Economic Growth as a by product.

The budget is imaginative and has captured almost all the ill of the economy. It is pro rich, pro corporate, pro poor and has some good intentions to track black money, find resources through conversion of gold resources into productive assets. Has identified areas for for investments, employment, skill development and has provided needed  support  for infrastructure growth. Development of bond market and  creation of infrastructure fund will give a fillip to raise long term funds. The negatives so to say in the budget are  there are nothing  to boost savings  vitally needed to support investment, support capital formation as such and middle class  particularly salaried have been completely ignored as the Government no more requires their support till the next election. Political interest has been well taken care of by pleasing NON NDA government ruled states. By and large, it can be said that it is an investment oriented budget with political gain in mind , but how far it will help to contain inflation only time will tell as the Service tax which is inflationary and adding to the cost of every transaction in the economy has been enhanced. RBI cannot be happy  as the measures to contain inflation  from supply side constraints are not finding place in the budget, and for taking away its powers on Monetary policy indirectly, FEMA regulation,  and public Debt management. The intent to make RBI powerless is very obvious.  

Dr. T.V Gopalakrishnan  

RBI needs to be flexible

Your editorial Monetary Policy; not by Inflation alone ( 24/2/15 ) is very apt to make RBI ponder seriously and change in its policy stance. While, keeping inflation under control at a reasonable level at around 5% is highly desirable it cannot be taken as a sole and  inevitable condition to pursue  a favorable monetary policy which has other major objectives to be achieved Viz Monetary stability, economic growth and provision  of conducive economic environment in terms of availability of adequate credit at reasonable cost and credibility in the whole support system of banking and finance that it can be depended upon for expansion of the economy on a larger scale. The fact that in respect of the  broader economic objectives of the country there cannot be any second opinion that the Central Government and RBI have to be on the same wavelength in their thinking , framing of policies and pursuing appropriate and timely action.

Dr.T.V.Goplakrishnan

Get rid of bad borrowers and bad management

The stakeholders of the economy and the banks bear the brunt as the losses on account of the dirty loans are passed on to the tax payers, depositors, shareholders and employees. The solution lies not in setting up bad bank but in disciplining the bad borrowers and the bad management of banks by imposing an inbuilt penalty on them using a statistical model identifying the symptoms of bad behaviour and bad supervison right from the sanction of loans. Such loans need to be liquidated by the fine amount collected and maintained with the banks over a period. Making the economy suffer and compelling the other stake holders to bear all the consequences cannot be tolerated any more and there should be a mechanism to punish the bad behaviuor. Unless and until a self correcting mechanism is put in place to liquidate the NPAs, the economy and all stake holders will continue to suffer and the bad guys will enjoy for ever.Time a serious and practical view is taken to contain the menace of NPAs in banks books and make the banks contribute to the economy the way the economy needs them as a supporting system for its fast and sustainable growth.

Dr T.V.Gopalakrishnan

(This comment appeared in Financial Express against the article setting up of Bad bank to take over bad loans.)

Wipe out the Fiscal Deficit and make it a surplus

The editorial keep to fiscal path ( Business Standard 23/2/2105) is very timely highlighting the need to maintain Fiscal discipline and the way to achieve it. The Fiscal responsibility and Budget management Act seems to have been kept aside for quite some time and its relevance as of today assumes  lot of importance in the context of keeping the Fiscal deficit under control when the means to find resources to finance the Infrastructure Development are scary given the fact that the Government remains averse to take some very bold decisions. The economy has abundant resources not only to wipe out the Fiscal deficit but also to fund the Infrastructural developments is a fact but how to tap the resources   incurring the wrath of the vested interests is a big question mark . The resources can be easily found in the gold reserves of the country, black money held both in the economy and outside the economy in various forms, unproductive assets held in PSBs and  non performing PSUs and PSBs wasting the scarce resources for laxity in Governance and accountability. If the Government can take some steps to convert these unproductive and undesirable assets of the economy into productive assets, the resources would be plenty enough to make the Fiscal deficit a surplus and make the infrastructure development a reality to support the economic system on a perennial basis. Will the Government show the grit and act?

T.V.Gopalakrishnan

(Modified version of this appeared in Business Standard under Letters Column dated 24/2/15).

PSBs cannot remain Non Performing any more.

 The editorial ‘Needed, More than piecemeal Reform’ (Et dt 18/2/2015) has very well captured the ills that PSBs encounter these days  and for their revival  more than the capital what is needed is  removal of structural rigidities is well  argued and concluded.  They suffer mostly for not for want of capital but for lack of professionalism in their managing the business in tune with the requirements of the economy and not evaluating themselves as to their effectiveness in driving the economy through adequate infrastructure growth for ensuring fast progress in the Industrial, SME and Agricultural sector is a fact, which cannot be ignored. The business models for deposit mobilization, credit expansion, deployment of funds in infrastructure and securities market need an overhaul for which the board needs to be highly professional with persons of high integrity, skill, experience, commitment and involvement. The economy has abundant resources in terms of money, gold, human capital and all valuable other  commodities and it is for the banks to tap them appropriately and make them productive assets. The banks themselves cannot remain Non performing is what needs to be realized at this crucial juncture of bringing fast changes in the economy through improved Governance, ease of doing business and targeting inclusive and fast growth of the economy.

T.V.Gopalakrishnan   

(This letter appeared in ET dated 20/2/14 under the Chat Room).

Accountants are the Culprits behind all frauds in India.

The fraud must have been going on for years and the authorities of banks, RBI, SEBI and Chartered Accountants of India must have been ignoring the same as the accountability for doing their respective duties honestly and diligently has not been adequately fixed.The major culprits in any fraud are the Chartered Accountants whose creativity in producing fraudulent accounts is something extraordinary in India. Same thing happened in Satyam computers Ltd  where fraudulent accounts were prepared and given to banks and other authorities which were accepted without suspecting any irregularities.  All NPAs in banks are also as a result of fraudulent accounts produced conveniently by the Accounting firms. Banks accounts are always window dressed to project a better image and camouflage NPAs with such an ingenuity and precision that the fraud goes unnoticed, non detected for decades. Creative accounting is an established practice and unless and until the Chartered Accountants and auditors are booked and  made accountable the frauds in the system will continue to be prevalent and there is no way of knowing the true position of Financial state of affairs of business establishments. The loss is borne by innocent tax payers of the economy and that is the sad part of it.

Dr.T.V.Gopalakrishnan

Why not make an attempt to improve the statistics and make it more reliable.

Why not make an attempt to improve the statistics and make it more reliable?

This refers to the editorial what is the right number? (Business line   dated 7^th Feb 2014).

 The statistics in India is not reliable and needs to be drastically improved was highlighted by none other than the former Governor Dr Subba  Rao while presenting one of his credit policies some years back. The GDP does not reflect the correct figure is a known truth and the change of base year does not make any sense to get the true picture as the assessment based on a new base year taking into account the current market prices only factors the persisting high inflation and does not identify all new products and services that have been added in the economy under the trickle down theory after the reforms have been in vogue since last two decades. The dominance of informal economy is an acknowledged fact and the services sector particularly services in the form of catering, furnishing, car servicing and washing, ironing, event managements, house paintings, etc have gone by leaps and bounds in all major cities and suburban towns without having a formal system of   accounting or payment system. There are innumerable types of economic activities taking place in the economy and to what extent they get  really reflected in our GDP other than by some rough estimates is anybody’s guess. The generation of data on the creation of employment, productive assets, etc leaves much to be desired and it is time the Government takes some serious steps to improve the data collection to get the correct number or nearer to that  involving banks, government agencies, professionals etc with the active use of Information Technology and with proper tie up to trace all types of economic   activities, transactions and have a trail of transactions. The real GDP should be much more than what is estimated even based on the revised estimates changing the base year. The beneficiary would be the Government first and then the economy and its people.Policies taken based on the more or less correct data would definitely get translated into better results.

T.V.Gopalakrishnan

   

A sensible credit policy from Dr Raghuram Rajan

The credit policy announced on 3rd February 2015 makes lot of sense this time as it sounds very positive on the major macro economic fundamentals of the economy  like improvements observed in  inflation, Current account deficit, forex reserves, etc. and offers some sensible measures to provide liquidity, maintain stability of the rupee, mobilize deposits on a long term basis to expand infrastructure credit without much of a mismatch in the Asset Liability management. However, RBI has also sounded skeptical on the Fiscal front and prefers to wait for the revised detailed data on economic Majors on the 9^th of this month and the possible budget proposals to assess the soundness and stability of measures to sustain the economic growth on a long term basis to take a  liberal view of its own monetary policy. Its approach to dump credit defaulters also sounds sensible and banks should take full advantage to bring down the NPAs through conversion of debts into equity and inducting new management in sick companies.   

Dr. T.V. Gopalakrishnan