RBI, Government and the New Governor

This refers to your editorial “The Promise of Change” (Business Line August 8).As rightly pointed out if the appointment of Raghuram Rajan as the next Governor of the Reserve Bank of India can bring in improved relationship between the Government and the Reserve Bank, that itself will go a long way in enhancing the confidence in the economy a lot. The problems faced by the economy are basically from the inadequacies of the fiscal and monetary policies and these have arisen due to lack of coordinated approach and mutual understanding between the Government and the RBI. The Government failed to appreciate the stance of the RBI policy to contain inflation to ensure sustainable growth and did not support the move of the RBI which led to widen the gap between the RBI and the banking system. The banking system lost its focus to concentrate on its basic functions to mobilize savings of the households and lend to productive purposes. The final result is that the economy lost its grip on growth and retail inflation, the Government lost its grip on building the vital business confidence, the RBI lost its grip on growth and the banks lost its grip on savings and good lending culture. Hope the change of Governor will bridge the gap between the Govt and RBI and bring in the promise of change very badly needed by the economy to boost the confidence level wherein the solution for all the ills of the economy lies.   

Dr.T.V.Gopalakrishnan    

The new Governor and the economy

The economic problems of this country are something unique which a world class economist cannot solve overnight or even after several months. Corruption, Black Money and Informal economy are major impediments which RBI cannot control easily unless and until the Government takes the initiative. Inflation is supply linked and RBI has limited say in the matter as the dear money policy can have its own adverse impact  on the growth side. The physical and social infrastructure needed to support the economy can be provided only by the Government for which the political Stability is a must. Laws of the land are strong but their implementation is the weakest creating chaos in the system. Rupee depreciation is an issue which can be tackled only with the active performance of the Government to augment production of quality goods and create proper environment to export with adequate incentives and support. The gap between the rich and the poor has been widening and the poor feel the pinch of inflation and the rich merrily enjoys at the cost of the whole economy on which RBI has limited control. Savings and investment which are linked to the tax structure and  confidence level in the economy are beyond the jurisdiction of RBI. The import of oil at a high cost particularly  when the rupee is at a depreciated level is causing  heavy damage to the cost of production, supply  and inflation, is not  fully under RBI's domain.  The challenges for the new Governor are aplenty and there is no magic wand to put the economy on growth trajectory without inflicting some pains. Herein lies the competence of the Governor to win over the confidence of the Power of the Government and act independently. The task is not that easy as good politics and good economics seldom go together especially when the election is round the corner  and all the parameters of a healthy economy are negative and moving from bad to worse. Wish the new Governor all success.

( This comment is in response to the article Right On, Rajan that appeared in TOI dated 7/8/13)

New RBI Governor A world class Economist.

He is a world class economist of 21st century and has proved his mettle in International market through his career in IMF. But the world class standards are not in India is a fact he will realise sooner than later.Here many are illiterates and many are rich without paying any taxes to the Government. Poverty is extreme and there are people with billions and billions of rupees. Here what we require is administration and effective Governance Standards.Implementation of the laws of the Country without fear and favour is what is required in the Country for the present. Raghuram Rajan Should not repent later on for having taken up this task. Here expertise in knowledge is not what is required but smartness in handling politicians is what is required. Rajan is a world renowned economist but can he deliver with the present set of politicians and their agenda which never includes good economics.

Dr.T.V.Gopalakrishnan

Poverty Line Debate

If Iyer feels his calculation of poverty line is very logical and sound he should strongly recommend to the Government to reduce the salaries and perks of all MPS, MLAs, Industrialists, bureaucrats and make it uniform to all as Per Tendulkar's poverty measurement and Planning Commissions Measurement.Let all Indians live on that levels of income. Then there wont be any grouse. If wealth cannot be shared reasonably well to all at least share the poverty which should not be that difficult.But fooling people with senseless and mindless calculations without going by the ground realities of the situation can incur only the wrath of the people.

Dr.T.V.Gopalakrishnan
(This is in response to Swaminathan Iyer's article that appeared in Times of India dated 4/8/13).

Bank Licences to Corporates

The argument put forward by the Governor in favour of granting licences to Corporates is surprising in the sense that when actual decisions will be taken on this issue of Licences the Governor may not be in RBI as things stand today. No doubt Corporates having bank Licenses will enhance competition  but that will be unhealthy competition without any ethics or values. They may mobilise deposits by way of Financial inclusion and they may siphon off these funds resulting in financial exclusion. Further, Corporates will interfere in regulation and RBI will be virtually dictated by the Politicians and Corporate honchos. NPAs will increase and write off of loans to benefit the Corporates will become  a regular feature as happened in good old decades. Sick industries will increase asking for tax concessions and incentives of all kinds. The disadvantages will outweigh the advantages and again the masses will have to bear the brunt. Deposits will carry higher rate of interest for huge deposit categories and this will have to be subsidised by small deposit holders and small borrowers.  The exploitation tendencies continue to be prevalent among the large corporates and RBI will also become a party and silent spectator. The competition so highlighted by the Governor will turn out to be unhealthy  and RBI will become helpless. The soundness and healthy banking system so far built up very painstakingly and meticulously by the RBI will  be a given a go by and the risks the economy will have to face then will be beyond control and  easy  solution. The Governor perhaps wants to make the applicant Corporates happy on the eve of his expected departure from RBI and earn their good will  as all along he has been fighting with them  without yielding to the Corporates' market and Government  pressures to reduce the interest rates to contain retail inflation .  

Dr.T.V.Gopalakrishnan

(This comment is given in response to the article" Bank licences for companies will make sector competitive: RBI Governor Subbarao"  that appeared in Business Line dated 3/8/13)

Is there no mandate for the Government?

''The FM should think of the mandate of the Government ie welfare of the masses, growth of the economy with the support of savings and investment, excellent administration without any scope for generation of black money, corruption, delay in taking vital decisions to facilitate production of goods and services without any hassles etc. The Central Bank has to ensure the price stability, financial stability and availability of adequate and timely finance. This is possible only if the Government works efficiently and keeping the welfare of the entire masses in mind. Time the Govt introspects and takes the needed steps to set right things that went wrong.''

Dr.T.V.Gopalakrishnan
(This comment is in response to  Duvvuri Subbarao responds to P Chidambaram, says inflation hurts poor that appeared in ET dated 2/8/13)

Avoid borrowed resources from international markets

Raising funds from overseas may be easier but at what cost? Can the economy bear such losses? The cost will certainly outweigh the benefits. Instead, the FM would do well to raise domestic savings and improve the investment climate to attract inflows. He has to give assurances on the steady  taxation policies  and removals of major hurdles to do the business with ease. Investors need to be attracted and  funds coming only  as investments than loans  are   good for the economy. The present crisis the economy is facing needs solution through improved political climate, reduced inflation and inflation expectations, increased savings in financial instruments particularly in savings and FD deposits of banks,enhanced exports by reviving industries which have fallen short of expectations, reduced imports, well managed expenditure controls particularly expenditures involving foreign exchange, improved efficiency in administration to minimise corruption, black money dealings, red tap ism etc. There are huge cash resources with a large number of Corporates and High net worth individuals and the Government should be able to tap them even at a slightly higher cost to tide over the resources crunch. The solution does not lie in borrowing funds from abroad.

Dr.T.V.Gopalakrishnan
(This comment in response to Chidambaram hints at making  overseas resources raising easier appeared in Business line dated 1/8/13)