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)

Housing and middle and lower class people

The affordability of middle and lower class people to acquire a house has gone down considerably thanks to persistent high level of general inflation and continuous increase in the cost of land and houses due to speculative buying by those who hold black money and enjoy a salary income more than the average earnings of an average Indian due to boom in IT and favourable taxation policy for higher income group. Multiple holdings of houses have become a fashion and a way of investment by higher income group due to tax incentives and easy availability of loans. This is not applicable to lower middle class and wage earners who constitute a major chunk of the population. For them to have a two square meals a day is itself a luxury. The prices for food cloth, fuel travel, education health etc are so high threatening and frightening the very survival of these people and the question of owning a house does not even come to them even in the wildest of dreams. The Govt may or may not be aware of the ground realities the people at the lower levels of the pyramid face as the data collection and interpretation do not seem to have been reflecting favouring this group. This group deserves a special treatment and earlier the Govt acts the better for the govt and the people.

(This comment appeared in ET dated 3/12/12)

Dr.T.V.Gopalakrishnan.