Economic
Highlights
New Delhi, 5 November 2018
RBI-Govt Spat
PLAYING WITH PEOPLE’S
MONEY
By Shivaji Sarkar
There is both good
and bad news. India rises to 77th in ease of doing business, jumping 23 paces
in World Bank ranking, which is good. But the Rupee is touching 74 to a dollar
and the stock market moving up and down, which are matters of concern. The RBI
versus Centre, having a spat or the confrontation between the two, wading into
uncharted territory, is sending out a confusing signal.
Last year, India was
at 100th position and 142nd in 2014 in WB ranking. This jump
is a shot in the arm for the Modi government, ahead of the impending elections.
The WB says that India has done well in six of the 10 parameters such as construction
permits, getting electricity, getting credit, paying taxes, trade across
borders, enforcing contracts and resolving insolvency.
This means a lot. It means
more people around the world may be willing to come to India either to set up shop
or transact with Indian business or government organisations. Simply put it
means somewhere the government has changed and has stopped the nagging and unnecessary
interference. This should augur well.
But there are glitches.
Inflation though in a band, is not stable. The prices are varying at domestic
level. At the international arena it is in a bumpy region. As rupee
decelerates, prices of export and import vary every day, which impacts the
domestic market, pricing and makes export prices volatile.
The most glaring
impact is seen in petroleum prices. Almost 80 per cent of crude is imported and
about 20 per cent is prospected within the country at half the cost. But when
it comes to pricing, it is based on the day's international price, with many questioning
its prudence.
Worse, it impacts the
stock market, which remains a factor in inviting investment. A choppy market
creates a wary situation. So despite the government wanting, even with
favourable WB certificates, all is not hunky dory.
The big question then
is whether the government is at fault? Normally, it’s not. Businesses, despite the
several ease of norms initiated, are dependent on various government steps
despite its stance of neutrality. The government still finds itself doing a lot
of hand holding. Indian businesses too are at fault. Since Independence, almost
for the past 70 years, businesses themselves could not develop the confidence of
being on their own. When they do well, they resent government asking even a
simple question, but when they are in the slightest difficulty, they rush to
the government for succour.
Then there is the bureaucracy,
which feels that if there are no problems, it would become redundant. Thus,
sometimes problems are deliberately injected. But the fact that businesses
cannot do without government is testified by Donald Trump administration in the
US. Howsoever the business houses may want, both government and businesses
cannot fully chart out separate courses. They have to be in each other’s
benevolent neighbourhood.
This clearly means
the government cannot be wished away and that both must appreciate it. However,
at the same time the two should be kept at an arm’s length from each other. Often
this thin line is missed. If there is high NPA of banks today, the government
is made to bear the brunt of its “policy failure”. The biz forgets that in
2008, when they were doing not so badly and did not need the huge lendings from
the banks, at the back of the Lehman Brothers meltdown, they rushed to the
government to “incentivize” them. Unfortunately, the government then did not
act in a prudent manner and fell into the biz houses’ trap.
As a result, no biz
house today says why they took such huge loans, which mostly they did neither
need nor did repay. So the NPA is their doing and of course the government needs
to take the blame because its interference in banks was not needed at that
time. No doubt, both biz and government committed a fundamental mistake. Both had
their understanding that public sector banks were “government properties” and that
“public fund is nobody’s money”. So squandering it away became a national
pastime.
Everybody forgot that
it is the common man’s hard earned money. They also forgot that it is poor man’s
savings that has been running this country for the last 70 years. The government
forgets that it has always been borrowing from that poor man through national
savings scheme (NSS), Kisan Bachat Patra
(KBP) or Public Provident Fund (PPF) and now directly delving into banks
deposits. For NSS, KBP and PPF, the government had been paying attractive
interest rates and that it partially helped the poor.
Now as the government
and businesses scoop bank funds, it shakes the very foundation of banks and the
poor man at every level loses his interest payments. The Rs 12 plus lakh crore
NPAs have shaken the foundation of the economy.
The government and
RBI spat is a result of this “basic misunderstanding”. The bank’s money is not
the money of the government. It is people’s or nation’s wealth. The government
as it repeatedly says should have kept away from the bank funds and the banks
should have been allowed to take commercial decisions. There is no scope for
treating it on compassionate ground and using it for doles. Finances are hard
earned. Any non-commercial outlook creates the mayhem that the nation is facing
today. Thus, the RBI has to be a tough regulator.
Despite all of it, even
in the past, though Section 7 of the RBI Act was not invoked, the RBI is known
to have acquiesced with government requests. The section provides for an
emergency when the government can give instructions. In all regulations, such
safety clauses are there lest the regulator itself becomes a monster.
Yes, the NPA boom was
there because the RBI did not function as prudently as it is expected to.
Politically, there could have been a different government then. But RBI also
did not act prudently when it allowed the high-end currencies to be
demonetised. So it appears if the regulator does not function, biz or
government transgress the unwritten limits, the nation can face a crisis.
The country certainly
has learnt a lot. The poor man has suffered and businesses are on a roll. The
government needs to find out how the table can be turned by keeping off honour
accepted niceties and let the economy boom. They all have to sail together for
the common man. That is the great limit for a thriving nation.---INFA
(Copyright,
India News & Feature Alliance)
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