Fiscal correction not to be trifled with | Business Line

Fiscal correction not to be trifled with | Business Line

Online comments posted on July 25, 2014:

How fast the
finance minister Arun Jaitley and RBI Governor Dr Raghuram Rajan imbibe the
content of four small paragraphs under the sub-heading ‘Inter-generational
equity’ will decide the time that will be needed for India Growth Story to fall
back on track. This portion of the article(highlighting the words like
‘inter-generational burden of excessive government borrowing’, ‘internal debt
explosion’, ‘consolidated sinking fund(CSF)’, ‘sale of family silver’  and ‘created money’) should be widely
circulated among policy makers and the beneficiaries of the opening up of the
economy, who, so far, belong to the higher strata of Indian society. CSF is an
idea which should be pursued vigorously. Actually, cooperatives in states like
Kerala had factored in this idea in their debenture(long term borrowing)

The recent
tendency on the part of government to suck out created profits/surpluses from
balance sheets of statutory bodies and PSUs(including banks) will soon affect
the health of the financial sector. The suggestion that transfer of surplus
‘income’ by RBI to GOI should be allocated to the CSF should be seen in this

Last year, I had
concluded an article in The Global ANALYST with the following observations:

ensure that temptations of government emanating from external compulsions do
not dilute the strength of RBI’s balance sheet, GOI should take measures to
augment the share capital and reserves of RBI after carrying out appropriate
amendments to RBI Act. Till such time RBI should be allowed to retain surplus
income by transfer to reserves. Considering the size of its balance sheet and
the internal and external pressures on its income generating capabilities, as
also the nature of shocks the Bank has to absorb from time to time, the central
bank’s reserves need to be augmented on an ongoing basis.”

M G Warrier,


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