RBI Monetary Policy: Finally, focus on "National Balance Sheet"
The Hindu, April 7, 2017
Editorial
Growth, with caveats
Excerpts:
“The RBI is
quite optimistic about an uptick in the economy this year, projecting 7.4%
growth in Gross Value-Added, compared to 6.7% in 2016-17. Along with improved
prospects for the world economy a rebound in discretionary consumer spending at
home is likely, in line with the “pace of remonetisation” and investment demand
on account of lowered interest rates. While the government may take heart from
the higher growth projection, it must pay equal heed to Mr. Patel’s plainspeak
on four key issues. First, the need to urgently resolve the surge of bad loans on
bank books, for which the RBI will unveil a new Prompt Corrective Action
framework by the middle of this month. Without this, a virtuous cycle of
healthy credit growth necessary for investment and job creation will remain
elusive. Second, the RBI has reminded the government there will be
“clearly more demand for capital” in the coming days. The government’s
allocation of Rs.10,000 crore to recapitalise public sector banks is obviously
inadequate. Third, while banks have reduced lending rates, the RBI has
pointed out there is room for more cuts if rates on small savings schemes are
corrected. Though a formula-based rate was adopted to set these rates last
April, small savings schemes still deliver 61-95 basis points higher returns
than what they should if the formula is followed, as per the RBI. Most important, the
government must not ignore Mr Patel’s categorical call to eschew loan waivers of
the kind just announced in Uttar Pradesh. This, he warned, would crowd out
private investments and dent the nation’s balance sheet.”
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