Fiscal deficit at 5.1% is unrealistic

Dr.T.V.Gopalakrishnan , Mumbai , says: The budget 2012-13 is for the survival of the Govt and not for the revival of the economy which is sagging for the past few years for want of proper direction and crucial policy decisions. The fiscal target fixed is not only unrealistic and cannot also be sustained if one were to go by the past records.The expenditures are not under control and the subsidies for food,fertilisers and fuel are absolutely unmanageable.Economic growth alone is the solution for many of the problems including fiscal deficit and unfortunately the budget proposals and domestic and external environment do not favor an excellent growth prospects. The economy has to put up with all these problems till political stability is established first which is a stupendous task as of now.
19 Mar 2012, 1919 hrs IST





(This is in response to the opinion poll in Et dated19/03/12).

RBI and Policy Rates

Dr.T.V.Gopalakrishnan , Mumbai , says: RBI has no option but to keep the policy rates unchanged taking into account the pressures on inflation,Govt's reluctance to act on fiscal front effectively and other uncertainities from external sector.RBI alone cannot find measures to the ills of the economy is a fact which needs to be recognised by the Govt.
(This appeared in ET dated 16/03/12

RBI's Policy Review on 15/03/12

The Reserve Bank kept all the rates unchanged and this move was on expected lines.Normaally,the Reserve bank's review follows the annual budget of the Govt and the Bank gets to know the move of the Govt and and a full feel of the economy based on Economic survey and buget indications.The sharp cut effected by the Bank in CRR a week ahead of the review was quite unexpected and surprising as it gave the message to the market that the Reserve Bank fully recognises the liquidity constraints in the system and action is called for.However,the inflation pressures suppressed under the uncertainities of the oil price increases and containment of fiscal deficit cannot be overlooked by the Reserve Bank for effecting policy rate cuts although, the industrial growth demands a steep cut.The present position is that the Reserve Bank and the GOVT are in opposite directions and there is an inevitable need for them to come together to frame monetary and fiscal policies.Perhaps,the budget to be announced on 16th would pave way for that.

Wiil RBI go for a rate cut on 14th in its policy review?

Dr.T.V.Gopalakrishnan , Mumbai , says: The RBI cannot afford to effect any rate cut in its policy review due on 15th for the simple reason that the review comes just before the budget.Further,RBI would like to have an idea about the Govt's approach to contain fiscal deficit.The inflationary pressures continue to persist in the economy and it is too early for the RBI to take a call on rate cut although manufacturing side needs a boost by reduced interest rate. In all probability, the Reserve Bank would prefer to revise the rate downwards in its annual policy review in April.
14 Mar 2012, 1747 hrs IST

(This appeared in ET in response to their Opinion Poll on RBI Rate cut)

NGOs and investigation

DrT.V.Gopalakrishnan , Mumbai , says: The timing of probing does not indicate good intentions of the govt.Scrutiny of accounts should be a routine and regular affair.Now it is for victimisation and the Govt is not now comfortable with the agitatition againt nuclear project at Kudankulam. Public expect the government to be fair,unbiased and prudent in all their activities and should be above suspicion.
2 Mar 2012, 1734 hrs IST
(This appeared in ET dt2/03/12)

Taxation policy needs accurate data

Taxation policy and our Data System

This refers to the debate "should there be a super rich Tax?" ( Business standard Feb 29,2012).The concept of super rich tax has been engaging the attention of advanced countries for quite some time and even some of the highly rich individuals in these countries have volunteered to contribue to rescue the economies from financial crisis.The taxation policy should be very fair and those who earn and accummulate wealth have to naturally come to the rescue of the poor who are not only below the poverty line but are also virtually starving without even a single meala day. The equitable distribution of nation's wealth is the responsibility of the Govt and it is unfortunate to observe that only 3 percent of our population is paying tax which is absurd and not tolerable when nearly 80 percent of the population lives on less than Rs 20 a day and 77 percent of our Ministers and 300 MPS who frame the policies for the people are millionaires.
This sort of situation naturally gives room for doubt whether the economic policies so far pursued in the name of AAM ADMI have been on the right track?The major problem faced in the economy is the absence of accurate data/ information and the economy which supports the whole world with its Information Technology power has not been able to put into optimum use of its IT power to generate proper data system. Mr Kamath Chairman ICICI BANK and Infosys is right for his observation under Chinese Whispers colum next to the debate column BS dated Feb29 that there is a lot of growth that gets lost due to inefficiencies in our data collection mechanism ,largely omissions and there is growth that is not recorded in the system. This is more or less true in our data relating to tax, people below poverty line, inflation, employment etc. It is time for the Govt to aim to capture exact data so that the policies that are pursued towards eradication of the ills of the economies achieve the desired result. Even the Governor of the Reserve Bank once sounded on the need for accurate data to frame policies. Taxation policy needs all the more accurate data to assess and decide equitable distribution of wealth of the nation.


Dr.T.V.Gopalakrishnan

( An edited version of this appeared in Business Standard dt1/03/12)

Incentives to Manufacturing Industry.

Dr.T.V.Gopalakrishnan , Mumbai , says: The manufacturing secor needs a hassle free atmosphere to carry out their operations.Govt has only to ensure that this sector does not face any administrative delays for getting continuous power supply, harassment by officials from tax authorities and it gets smooth transport,storage and marketing facilities etc. The fact that the ease of doing business is missing in India needs to be addressed and that itself will be a great incentive to make the manufacturing sector globally competitive.Labour laws also needs to be made industry friendly. Will the Govt act with right earnest?
29 Feb 2012, 1741 hrs IST
( This appeared in ET dated 29/2/12).

The fall in the capital Market on 27/2/12

Dr.T.V.Gopalakrishnan , Mumbai , says: Market will continue to be bullish and the sensex will touch 20000 if not by March 16,but certainly after the budget.Economy is strong but unfortunately missing the direction and support from the Govt for reasons purely political.The ensuing budget is expected to be good and can boost the sagging morale and confidence of investors and mood of the people.Time for the Govt to act on the economic front taking advantage of the potential and resources of the economy.People are awaiting for that and the budget 2012-13 can do the trick.
28 Feb 2012, 1400 hrs IST

(This appeared in ET dated 28/2/12 under opinion poll)

Cash Deposit Ratio continues to be still High

Is the Cash Deposit Ratio of Indian Scheduled Commercial Banks very high?
The Cash -Deposit ratio of scheduled commercial Banks in India (Cash in hand and Balances with RBI as percentage of Deposits) is observed to be high at 8.2% for all scheduled Commercial Banks as at end march 2011. The ratio ranges between 6.9% (old Private Sector banks) and 9.2% (New generation Private sector banks). This includes the Cash Reserve Ratio of 6 percent statutorily required to be maintained with the Reserve Bank in terms of the Reserve Bank Act 1934 which has since been brought down to 5.5 % in the recent credit policy review held in January 2012. The need for such a high cash deposit ratio ratio, in these days when plastic cards, inter-net payments, electronic funds transfer etc are on the increase is surprising and needs to be viewed seriously in the context of efficiency and profitability of banks. In fact the ratio which remained at 7.1% in March 2002 has gone up to 8.2% in March 2011.
Since the culture of ATMs has been spreading fast, no doubt the banks need to maintain hard cash to meet the demands of customers. There are 74505 ATMs functioning all over the country as at end March 2011.The public preference for hard cash continues to be strong perhaps indicating lack of spread of banking habit in its fullest sense, the persistence of corruption, prevalence of black money, high level of inflation and general insistence for cash payments for commodities like gold and silver in particular. The high level of cash transactions in the economy necessitates more physical notes in circulation adding responsibilities to the Reserve Bank and increasing the Seignorage cost. This has been well evidenced in the increase in Bank notes in circulation by 18.7% i.e. from Rs.7, 88,299 crores in March 2010 to Rs. 9, 35,856 crores in March 2011.
Banks have been provided with currency chests to improve their cash management. The Reserve Bank through its 18 issue offices, one sub office and a wide net work of 4248 currency chests carries out the issue of notes and management of currency and helps the banking system to improve its funds management.
The cash deposit ratio of late, seems to have its importance it had in the good old days. With the implementation of prudential norms as per Narasimham Committee’s recommendations on Financial System and Banking sector reforms and also Basel I and Basel ii guidelines for improving banks’ efficiency, productivity and profitability, the attention paid in the maintenance of cash and the cost it adds to banks’ overall cost of funds seems to have been somewhat missing affecting adversely the profitability of banks among other things. The old private sector bank maintains the best cash deposit ratio (at 6.9%) and their cost of borrowings is comparatively the lowest (at 2.2%) as on March 2011 among all the bank groups.

Position of Cash Deposit Ratio* of All Commercial Banks

As at end March
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
7.1 6.3 7.2 6.4 6.7 7.2 9.7 7.3 7.7 8.2
• Cash in hand and balances with RBI as percentage of Deposits.
Position of ATMs of Scheduled Commercial Banks:
(As at end March 2011)
Sl. No. Public Sector Banks Old Private Sector Banks New Private Sector Banks Foreign Banks All Scheduled Commercial Bank
1 2 3 4 5 6 7
1. On-Site ATMs 29,795
(23,797) 2,641
(2,266) 8,007
(6,337) 286
(279) 40,729
(32,679)
2 Off-Site ATMS 19,692
(16,883) 1,485
(1,124) 11,518
(8,720) 1,081
(747) 33,776
(27,474)
3 Total No.of ATMs 49,487
(40,680) 4,126
(3,390) 19,525
(15,057) 1,367
(1,026) 74,505
(60,153)
Figures in brackets relate to March 2010
Source: Report on Trend and Progress of Banking in India 2010-11.
Payment and settlement system has been well strengthened over a period to facilitate smooth functioning of financial markets in particular and the economy in general. Both paper based like Express cheques clearing and grid based cheques truncation system and electronic payments like electronic clearing service, electronic funds transfer systems have been very well developed to ensure fast, efficient and well secured payment and settlements not only to obviate the need for physical movement of cash but also to bring in efficient funds management among banks. The Reserve Bank has thus streamlined the process flow in credit push systems like National Electronic Funds transfer, Real Time Gross Settlement, Electronic Credit System (credit) and National Electronic Clearing Service systems and banks are in a position to credit beneficiaries account without any hassles.
With all these facilities, the cash held at banks has been found to be very high and needs to be reviewed and fine tuned for improved efficiency. The cost of funds of banks at 4.7% and the cost of borrowings observed at 2.3% for all scheduled commercial banks as at end March 2011 can be further brought down by minimizing cash balances and related costs. Since the funds management leaves much to be desired, the banks can do a lot by improving the banking habit, spreading the card culture, enhancing the use of cheque and electronic payment systems and putting into optimum use of currency chest facilities.
There is ample scope to reduce the physical handling of cash at branches and banks and save all related expenditures. The cash and bank balances have to be considerably brought down taking advantage of the improved telecommunication system and facilities provided by the Reserve Bank. The asset liability management of the banks will also improve in the process. The Govt and the Reserve Bank can also bring in policy changes by insisting on payments beyond a cutoff point say Rs 5000 by means of instruments like cheque or plastic cards or through electronic payment systems. Payments of cash to organized and unorganized sector where ever possible and feasible should be made only through banks and banking instruments. This will help to reduce the cost and other administrative hassles faced by the Reserve Bank in the issue of currency notes. Less cash in circulation is also an indicator of economic development in general and banking development in particular is a fact which cannot be underestimated by policy makers. Such an approach will also facilitate strengthening Financial and Banking inclusion.

T.V.Gopalakrishnan
(This article appeared in Business Line dated 7/02/12).

Solar Energy in India

Dr.T.V.Gopalakrishnan , Mumbai , says: Not only in Solar power, even in other sources of power, the approach of the Govt is lackadaisical and the economy is suffering.The power sector needs lot of reforms and earlier the Govt takes the initiative the better. Solar energy, thermal power and other sources need to be fully exploited taking advantage of the favourable natural resources and other potentials of the economy.Politics plays spoilsport and economy's growth is hindered.

(This appeared in ET dated 31/01/12).

January 29, 2012:
Kudos to the Reserve Bank for having come out with a bold measure of releasing liquidity to the funds-starved market through reduction of CRR by 50 basis points from 6.0 per cent to 5.5 per cent.

This measure alone should help the banking system take care of partially the gaps in the credit needs of the manufacturing sector to augment investment and production, although the cost of funds is comparatively higher as policy rates have not been changed.

The Reserve Bank is fully justified in keeping the repo rate and reverse repo rate unchanged in the background of persisting high level of headline inflation which averaged at 9.7 per cent (y-o-y) during April-October 2011 and ever increasing fiscal deficit expected to be far more than the budgeted figure of 4.6 per cent.

Thus, the repo rate and the reverse repo rate will continue to be at 8.5 per cent and 7.5 per cent respectively. This has been done perhaps keeping in view the RBI's continued apprehension, and justifiably so, in containing the inflation and inflation expectations.

Comfort to liquidity
The relaxation in CRR is to provide comfort to the liquidity constraints, of late, faced by the banking system. The borrowings of banks from the Reserve Bank have been exceeding the limits and often much higher than the RBI's comfort level of Rs 60,000 crore.

These borrowings add to the cost of funds whereas banks do not get any return on their cash reserves kept with Reserve Bank out of their costly deposits. The reduction in CRR is expected to release funds to the tune of Rs 32,000 crore and this can be used to expand the credit particularly to the manufacturing sector. This should also help the banks to reduce the rate of interest to the borrowers to the extent they save on their borrowings from the Reserve Bank.

The banks got partially what they want but they also have got a lot to do in the economy taking into account the fiscal, monetary and economic conditions of the country. They have a major role to play to make inclusive growth a reality by taking advantage of financial and banking inclusion through innovative methods as a great business opportunity.

Improved offerings
The potential to increase deposits is manifold and the tendency of people to go in for other types of investments, particularly in gold and real estate, needs to be curbed by offering improved savings products. The NIM continues to be high in banks and this needs to be checked and brought down by improving the credit portfolio and recycling of funds.

The Asset-Liability management needs fining and cost of funds need to be brought down further. The Reserve Bank has been liberal with the banks by deregulating the SB NRI deposits rates and permitting them to restructure the sticky loans to improve their competitiveness and project a better balance-sheet.

The Reserve Bank has, however, moderated the GDP growth at 7 per cent as against 7.6 per cent projected earlier in its October 2011 review of credit policy. Considering, the external and domestic factors, even the 7 per cent growth is good enough to keep the confidence level high and to better the performance further in the next fiscal.

The need of the hour is the development of infrastructure which impedes the growth of the economy. Making available quality coal at reasonable price to the power sector through all possible means i.e. by rail and road will itself go a long way to give a boost to the economic growth.

The ease of doing business by removing administrative and legal bottlenecks, facilitating FDI investments in infrastructural developments, improving productivity both in agricultural and industrial areas without too much of interference by the Government and bringing in efficiency in the marketing and distribution of products, particularly agricultural products, need urgent attention which only the Government can provide. There is also an imperative need to activate and coordinate all rural development related agencies to give a facelift to the rural economy which requires more freedom for State Governments to take initiative.

Now, it is the turn of the Central Government to do its bit to contain fiscal deficit, improve supply constraints and provide the much needed infrastructure to give a boost to GDP growth and bring down inflation.

On the fiscal front, the Reserve Bank has made its message explicitly clear to the Government by saying that “considering the egregious implications of large fiscal deficits, which are well known , there is an urgent need for decisive fiscal consolidation, which will shift the balance of aggregate demand from public to private, and from consumption to capital formation. This is critical to yielding the space required for lowering rates without the imminent risk of resurgent inflation. The fourth coming Union Budget must exploit the opportunity to begin this process in a credible and sustainable way.”

Hope the Government does its part fast and the economy will flourish.

Dr.T.V.Gopalakrishnan

(This article appeared in The Hindu-Business Line dt29/01/12).

Why not a Joint review of Monetary and Fiscal policy ?

The economy needs a morale boost and this can come only if the Government and the RBI jointly initiate measures to revive the confidence of the investors.

January 15, 2012:
The Indian economy, which till a couple of years back was going strong and raising expectations of overtaking even China and other strong economies, has turned weak.

The US financial crisis of 2008, which brought down many economies, did not affect the domestic economy as the crisis was well managed both by the Government and the Reserve Bank of India.

In terms of broad parameters such as GDP growth, inflation, financial stability, exchange rate stability, and so on, the economy was doing well. But the situation changed since 2009.

Erosion of confidence
Many scams, one after another, were detected, revealing governance deficit. Corruption and black money attracted much attention and affected decision making at various levels.

Inflation raised its ugly head and continued to remain unabated. Industrial production declined, with hike in interest rates being cited as one of the major reasons for it. Infrastructure development did not get the priority it deserved.

Favourable monsoon did not bring down food inflation as supply chain constraints and periodical increases in fuel prices affected the marketing and distribution of food products at reasonable prices.

The trade gap widened due to increased imports and reduced exports. And exchange rate fluctuations added fuel to fire. The rupee depreciated by around 17 per cent since August 2011.

Administrative policies were not implemented as expeditiously as the economic conditions of the country demanded. Investments, especially FDI, slowed. And FIIs started pulling out their investments, creating volatility in the stock market.

The downgrading of the US economy and the European crisis have aggravated the situation.


Inflation focus
The Reserve Bank took a series of measures, basically to contain inflation. The approach was to make money dearer and reduce the purchasing power. The RBI raised the repo rate 13 times since March 2010, and brought it to 8.5 per cent in October 2011. The reverse repo was revised to 7.5 per cent and the Marginal Standing Facility was fixed at 9.25 per cent.

Interest rate on savings bank and NRE accounts was deregulated. And sensing the mood of the investing community against further interest rate hikes and seeing some respite in inflation, the RBI decided to keep the rates unchanged in its policy review in December 2011.

But production costs have increased, not only because of the hike in interest rates but also because of input costs going up, reducing thereby the profit margins and fresh investments.

The fiscal policies have not been moving in tune with monetary policies. The general opinion is that the RBI alone is taking action and the Government has been keeping quiet on various fronts.

Direct and indirect tax revenues, which are directly linked to GDP growth, have not been keeping pace with Budget expectations, and the Government is falling behind in achieving the disinvestment targets due to poor market and other conditions.

Infrastructure required for industrial production, particularly energy, has not picked up for want of fresh administrative policies and proper implementation of existing ones.

Fresh impetus
The economy needs a morale boost and this can come only from the Government. To start with, the Government and the RBI should jointly review the monetary and fiscal policies pursued so far and initiate measures to revive the confidence of the investors.

Since food inflation has started declining and the overall inflation is expected to fall to around 7 per cent by March 2011, the RBI can consider effecting some reductions in its policy rates.

Dr.T.V.Gopalakrishnan

(This article appeared in The Hindu-Business Line dt16/01/12)

Govt and Lokpal bill

Dr.T.V.Gopalakrishnan , Mumbai , says: The GOVT has hot been observed to be sincere and honest in eradicating corruption and black money in the economy which take away the strength of the economy. The Lokpal bill could have been brought out by the GOVT right royally sensing the mood and demand of the people. The awareness among the people about the corrupt practices very cleverly perpetrated by politicians and bureaucrats has been well spread by Sri Anna Hazare and his team and it is not easy for any force to erase that from the people. Earlier the Govt realises the better for the present and future Govts. Time has come with or without a lokpal bill to remove corruption from society and a proper bill will only be a facilitator.With the passage of an effective bill the Govt can earn the lost image and goodwill and it should put all positive efforts to bring out a bill acceptable to the society. Trying to be oversmart in avoiding an effective bill in the name of politics will not be tolerated by any right thinking person.
1 Jan 2012, 1615 hrs IST

(This appeared in ET dt 1/1/2012

Incentives and exporters

Exporters are always a pampered lot.They enjoy tax incentitives, concessions,reliefs and interest rate subventions as the economy needs them to bring in as much foreign exchange as possible to support its essential imports particularly oil.Now it is time for the Govt to assess the support extended to exporters and value the benefits derived by the economy and reallocate the resources to vital segments like infrastructure which requires a thorough review, restructuring and fast development.One source of black money generation abroad is through exports and the inflow of funds to the economy through FDIs etc are part of this black money needs to be given weightage by the Govt when tax reliefs and concessions are liberally offered to exporters.Need based support is essential to encourage exports but as rightly pointed outin the editorial,it should not be at the cost of public money ignoring the other support system vitally needed for the economy to make all round progress.

Dr.T.V.Gopalakrishnan

(This appeared in The Hindu-Business Line E paper dated 18/10/11).

SBI and Moody's rating

Your editorial is well balanced and most appropriately concluded by saying that Moody's rating of SBI must be seen as a note of caution rather than as an alarm bell. The present predicament of SBI is the making of its present chairman for his utterances on banks' balancesheet as on 31st March 2011. Further the economy has not been doing well because of Govt's inefficient and ineffective fiscal policies in controlling inflation,black money, corruption and providing the much needed support to give a boost to economic growth. Of late its quality of assets has been deteriorating affecting capital adequacy, profitability and recycling of assets. All said, the Moody's rating basically based on some quarterly results do not reflect on the bank's overall strength with the strong backing of the Govt and its competence to overcome the temporary upsets. SBI is the largest PSB and it has abundant resources at its command to improve its performance in terms of NIM, asset liability management and capital adequacy ratio. It enjoys the confidence of investors, depositors and borrowers and the moment,economy starts showimg some sysmptoms of good growth, in no time the bank's performance will turn better. Moody's rating is only a warning to the bank to be more alert.

Dr.T.V.Gopalakrishnan

Time for Exchanges for SMEs

The idea of SME exchanges needs serious consideration and at least four such exchanges should be set up in East, West,South and North regions. This will facilitate upcoming and already existing entrepreneurs to raise equity funds to set up SMEs and venture capital and Private Equity Funds can find some good avenues for investment. Such exchanges would facilitate distribution and better utilisation of wealth in the economy.It would also ensure improved participation of the masses in the capital formation and provide adequate resources for capital starved but well promising ventures.Banks continue to be shy in financing SMEs is a fact.The present exploitation of SMEs by large scale units needs to be given a go bye.This is possible only if well regulated and well run exchanges are set up in the economy.The country has all the potential in terms of resources,human power, technology including capital but it lacks the initiative and approach particularly from the Govt to take up new ventures in the form of setting up of exchanges for SMEs. The reasons can be adduced to the grip and control the industrialists have over the Govt.They want to take away all the facilities and benefits of policies for themselves hindering the growth of well deserving SMEs in the economy. Earlier the exchanges are set up,the better. The emergence of exchanges would help improve the functioning of the NSEs and other regional exchanges. This would also bring in the much needed discipline among Companies.

Dr.T.V.Gopalakrishnan

Investors and Cpital Market

The editorial is very right in saying that by offering sops alone investors will not return to market.The market has been volatile since September 2008 when the financial meltdown began and continued without any sign of recovery.Even now the world economy is in a mess and the chances for an early recovery are remote.STT is non-inflationary in character and it is difficult to pass on to others and hence the grievance from investors and brokers.In fact,Govt should modify STT and should be made different for purchases and sales,retailers and whole salers,brokers and traders,FIIs and domestic institutions etc.STT can emerge as an important regulatory tool and it should contiue.Stamp duty rationalisation is overdue and needs to be expedited.The confidence in market needs a boost and for that the GOVT and SEBI should put on some coordinated efforts.The Govt has to ensure that its fiscal deficit will be contained through improved administration and policy initiatives followed by actions.

from: T.V.Gopalakrishnan.

(This appeared in the Hindu-business Line Dt 30/09/11).

Talk of taxing the rich at last.

Dr.T.V.Gopalakrishnan (Fort Worth, Tx)
At last Mr Chidambaram is talking sense.All over the world the move is to tax the richest and wealthiest people to take the economy out of the woods and in India the Govt thinks of abolishing the Security Transaction Tax which is paid basically by people who enjoy excess funds and speculate in the market out of greed and make more wealth. The rich who invest in markets earns dividend in crores of Rs do not pay any tax. They are not affected by inflation as they have both black money and white money to exploit the economy in all possible ways. They trade in commodities like gold and silver and that too using cash. They also trade in real estate like stocks and escape all forms of taxes. The limit for wealth tax has been substantially hiked and many do not pay wealth tax. The economy expects to fill its kitty by direct and indirect taxes making the life of common man miserable. It is time to have an asessment of the gap between the rich and poor over the last two decades in particular and evaluate the performance of the Govt. Rich has become richer and the poor has become poorer. The rate of growth of wealth has been exhorbitant and the black money generation is at its peak. The economy after the reforms has done well but the benefits have gone to the well off of the society is a fact to be recognised.The laws favour the wealthy and they rule the economy. Earlier the Govt realises the folly, the better for the Govt and the people.The FM needs a change of his mindset to act.

(This appeared in ET dated 28/09/11).

New Version of Loan Mela and the PSBs

The Govt's plans to dole out Rs 10000 to aam aadmi to boost rural economy through PSBs is nothing but replica of the 1980s loan melas and do not sound good economics or good politics. The banking system though financially sound thanks to Reserve Bank's regulation and supervision,but it is still under the Govt's direction is a curse.Particularly PSBs at this rate cannot be expected to be run on professional lines whether they come under RBI or not,as longs as Govt's interference is there. The system of financing agriculture is in a mess and the contribution of agriculture to the GDP is dwindling year after year. The presence of NABARD exclusively set up to develop rural and agricultural development is never felt and the RRBs, Local area banks and cooperative banks have equally failed to give a boost to the rural segment.Six decades of independence have not been beneficial to the rural masses is a stigma to our political system and economic management.Giving out doles like this to the poor only indicates that people can be fooled and they have not come out of their ignorance to have an independent thinking to assess our system of administration of the economy. This approach is nothing but an intelligent way of exploitation of the poor. This is another form of corruption perpetrated on the poor in our economy by the Government. It is time to change and see that real economic activities are introduced in our rural areas using the institutions set up with public money. Will the Govt act ?.

Dr.T.V.Gopalakrishnan
(This appeared in ET E paper dated 10/09/11).