A bad idea in the Economic Survey

A bad idea in the Economic Survey: Its proposal to use RBI funds to finance ailing banks and the proposed bad bank could affect the RBI’s credibility as a regulator...

Economic Survey 2017
This refers to the article “A bad idea in the Economic Survey”(HBL, February 27). Of late,  the Economic Survey is being used as a conduitto float fancy research ideas. .Last year, when ES made certain observationson RBI’s accounts, RBI Governor had offered to ‘teach’ those who are notfamiliar with the central bank’s accounting practices. Taking advantage of DrRajan’s departure from RBI, the authors of ES have bottled the ‘old wine’ inthe ‘demonetization bonanza’ bottle in 2017.
The flip side is, the arguments infavour of dipping into RBI’s reserves for government funding are built up inisolation and by drawing comparisons with small and big nations elsewhere whosestage of development, pattern of governance, role expectations from centralbanks and relationship between central bank and the exchequer are no waycomparable with the role expectations from RBI. For instance the ReserveBalances with Federal Reserve System as on February 8, 2017 was over $2.2trillion(public debt about $14 trillion). RBI’s share capital and reservesworked out to about  $35 billion(India’spublic debt $850 billion).
Moreover, as recently observed byformer RBI Governor Dr Y V Reddy, the interdependence of monetary and fiscal policies in the Indian context makes reading of RBI Balance Sheet in isolation meaningless. Of course, Reddy didn’t tell it so bluntly. He said, government’s finances and RBI’s resources are interrelated.

M G Warrier, Mumbai

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