Skip to main content

Pay heed to Urjit Patel(Hindu)

Reserve Bank of India Governor Urjit Patel’s emphasis on the vital importance of protecting domestic macroeconomic stability could not have come at a more crucial juncture. With the Centre in the process of finalising the Union Budget, Dr. Patel has stressed the need to ensure that it does not stray from the path of fiscal consolidation, at a time when the external environment is already adverse and likely to remain uncertain for the foreseeable future. That the clamour for a sizeable fiscal stimulus is likely to grow louder as budget day nears is a certainty, given the signs that an incipient demand slowdown may have been exacerbated by the cash crunch caused by the withdrawal of high-value banknotes. Within the government too, the temptation to loosen the purse strings to assuage adverse reaction to the demonetisation decision is likely to be high. It is in this context that the RBI chief’s reminder to the Centre that “borrowing even more and pre-empting resources from future generations” cannot be a short cut to achieving durable long-term “higher growth” is significant. With the general government deficit among the highest in the G-20 economies, Dr. Patel reiterated what several of his predecessors including Y.V. Reddy have harped on: high levels of government borrowing tend to crowd out private investment and paper over the urgent need for more abiding reforms.

Specifically, the RBI chief has suggested that government expenditure be ideally reoriented towards creating more public infrastructure such as expanded railway networks and urban mass transit systems that would help boost productivity even as it leads to reductions in the oil import bill and provides the collateral benefit of improved air quality. And in what could be seen as an expression of assertion of the RBI’s independence of thought, Dr. Patel spoke of the risks that policy interventions in the form of government guarantees and interest rate subventions pose. While not directly alluding to Prime Minister Narendra Modi’s announcements last month, which included a doubling in credit guarantees for micro, small and medium enterprises, the RBI chief said that “large credit guarantees also impede optimal allocation of financial resources and increase moral hazard.” With such guarantees only adding to the government’s liabilities and raising the risk premium on its borrowing, the better solution, he suggested, would be to resolve constraints such as transaction costs related to clearances and the taxation bureaucracy. As Dr. Patel said, “it is easy and quick to fritter away gains regarding macroeconomic stability”. But, as he added, it would be “hard and slow to regain them”.

Comments

Popular posts from this blog

Cloud seeding

Demonstrating the function of the flare rack that carries silver iodide for cloud-seeding through an aircraft. 
Water is essential for life on the earth. Precipitation from the skies is the only source for it. India and the rest of Asia are dependent on the monsoons for rains. While the South West Monsoon is the main source for India as a whole, Tamil Nadu and coastal areas of South Andhra Pradesh get the benefit of the North East Monsoon, which is just a less dependable beat on the reversal of the South West Monsoon winds.

SC asks Centre to strike a balance on Rohingya issue (.hindu)

Supreme Court orally indicates that the government should not deport Rohingya “now” as the Centre prevails over it to not record any such views in its formal order, citing “international ramifications”.

The Supreme Court on Friday came close to ordering the government not to deport the Rohingya.

It finally settled on merely observing that a balance should be struck between humanitarian concern for the community and the country's national security and economic interests.

The court was hearing a bunch of petitions, one filed by persons within the Rohingya community, against a proposed move to deport over 40,000 Rohingya refugees. A three-judge Bench, led by Chief Justice of India Dipak Misra, began by orally indicating that the government should not deport Rohingya “now”, but the government prevailed on the court to not pass any formal order, citing “international ramifications”. With this, the status quo continues even though the court gave the community liberty to approach it in …

India’s criminal wastage: over 10 million works under MGNREGA incomplete or abandoned (hindu)

In the last three and half years, the rate of work completion under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has drastically declined, leading to wastage of public money and leaving villages more prone to drought. This could also be a reason for people moving out of the programme.

At a time when more than one-third of India’s districts are reeling under a drought-like situation due to deficit rainfall, here comes another bad news. The works started under the MGNREGA—close to 80 per cent related to water conservation, irrigation and land development—are increasingly not being completed or in practice, abandoned.

Going by the data (as on October 12) in the Ministry of Rural Development’s website, which tracks progress of MGNREGA through a comprehensive MIS, 10.4 million works have not been completed since April 2014. In the last three and half years, 39.7 million works were started under the programme. Going by the stipulation under the programme, close to 7…