WEEKEND LIGHTER: RBI focus on National Balance-Sheet

WEEKEND LIGHTER*: National Balance Sheet
 (April 8 /9, 2017, No.14/2017)
Feel free to mail your views on this edition of WL to mgwarrier@gmail.com
*Weekend Lighter is posted every Saturday at www.warriersblog.com
(Please note the change from earlier mgwarrier.blogspot.in)
Section III: A rose is a ROSE…

Cover Story
Reserve Bank of India focus on
National Balance-Sheet
Reserve Bank of India (RBI) Governor Urjit Patel on Thursday expressed displeasure over the current spate of farm loan waivers and said these adversely affect the culture of repayments as well as put a severe burden on the exchequer.

“I think it undermines an honest credit culture. It impacts credit discipline. It impacts incentives for future borrowers to repay. In other words, waivers engender a moral hazard,” he said, after announcing the first bi-monthly monetary policy for 2017-18.

The RBI governor added, “We need to create a consensus that such loan waiver policies are eschewed. Otherwise, sub-sovereign fiscal challenges in this context could otherwise affect national balance sheets.”
My Response:  
This refers to Abhijit Lele’s brief report “Urjit Patel slams loan waivers” (Business Standard, April 7). RBI Governor’s observation “I think it undermines an honest credit culture. It impacts incentives for future borrowers to repay. In other words, waivers engender a moral hazard…” echoes the gist of RBI’s consistent stand on loan waivers which was articulated on several occasions in the past including at the time of  the introduction of Agricultural and Rural Debt relief Scheme (ARDRS), 1990. Centre and state governments, on most of the occasions, went ahead with their political agenda of such waivers which are partly responsible for spread of the malignancy of financial indiscipline to other sectors.
This time around, RBI has given the message loud and clear and the reference to ‘national balance-sheets’ should wake up the policy makers and opinion makers to the reality of the situation. When taxpayers money is diverted to purposes other than those for which taxes are collected and budgeted, governments will have to borrow to meet the extra burden which will create imbalances in fiscal management.  Many popular schemes like ‘freebies’, tax concessions to corporates, and refusal to bring certain sectors like agriculture within tax net are already making the budget exercises at Centre and states level slip out of the accepted contours of financial discipline.
While RBI advice to move towards a consensus to eschew politically motivated agricultural loan waivers is timely and welcome and needs to be taken seriously, simultaneous efforts are necessary to provide relief to genuine borrowers. Such supports would include providing crop insurance, ensuring all linkages for getting timely inputs at reasonable costs, irrigation facilities, cost-related farm gate price, storage  and transport facilities for perishable farm products and so on at reasonable costs.
M G Warrier, Mumbai
Recent responses
RBI should respond
Apropos “His Master’s Voice?”(Hindu Business Line, April 5), Government, institutions and individuals need to be seen to be honest and transparent in the conduct of their "business". More than any time in the past, this is necessary today because, misinformation can spread much faster their today through social media. People have become addicted to negative  sensational stories which, of late are being used even by reputed media houses to remain ‘popular’.
Post-Demonetization, an Economists-sponsored propaganda that lakhs of crores worth SBNs will not get deposited back to banking system, making GOI richer has been unleashed by vested interests. Even official documents like the Economic Survey 2016-17 doled out presumptive figures and ‘proposals’, giving credibility of sorts to the gossips. In such situations, RBI could have come out and clarified issues, as was being done when Dr Raghuram Rajan was Governor.
Having said that, RBI has never been secretive about Bank's or GOI's assets and liabilities figures. All the speculations to the contrary will come to an end when RBI Accounts for the current year are published in August 2017. Meanwhile, it is in nation’s interest not to belittle RBI through media gossips, just because the present Governor and his Deputies are not media-addicts.
M G Warrier, Mumbai
Rupee ruminations*
Latest revision of petrol/diesel prices by public sector oil companies also has been done with per litre price changes in rupees and paise. Earlier, there were revisions in fuel prices in ‘paise’ terms only.
Coins up to 25 paise have been withdrawn from the market and 50 paise coins have been pushed out of circulation by market. In the circumstances, GOI and RBI should consider making absence of coins with denominations below one rupee official and guide the market to fall in line by pricing all products in rupee terms only.
Now that dollar is accepted as the name of the currency accepted in international market, and we are in the process of ‘branding’ India, GOI could think in terms of introducing an Indian New Rupee(INR) worth the present value of Rs50 or so which could be named Indian Dollar or Bharat Chakra or any other attractive name that could be decided after conducting a competition.
Better still, India could persuade BRICS to introduce a common currency for member-countries which could be used for transactions among BRICS nations. Of course, in such a situation, member countries will have to retain their own present currencies for domestic transactions.
M G Warrier, Mumbai
*Letters, The Hindu Business Line, April 5, 2017
Unnecessary debate*
This refers to the report “Infosys defends pay hike for COO Pravin Rao” (Business Standard, April 4).
Read with this a totally unrelated report on pay rise granted to RBI Governor and his Deputies effective January 1, 2016. Transparency in norms and openness in implementation of decisions taken in ‘good faith’ need to become part of governance in government, public sector and corporates.
According to the official version, the first one was a decision taken by Infosys Board to revise the compensation package of COO Rao consistent with the company’s ‘philosophy of  aligning the interests of its leadership team to long term shareholder interests’. The GOI decision to revise the basic salaries of RBI Governor and his deputies from the level of Rs90,000 and Rs80,000 (fixed more than a decade back) to Rs2,50,000 and Rs2,25,000 (merging a major portion of Dearness Allowance), effective January 1, 2016 followed the pattern recommended by VII Pay Commission for  comparable positions in GOI. Both should not have attracted adverse debates.
One would expect eminent statesmen like Narayanamurty and Tata to now focus on broader issues of national interest rather than allowing the institutions they built to hang on to their apron strings for support or themselves peeping into the board rooms. They should now be talking about policies affecting production and marketing, economic growth and macro level changes necessary in approach to prices, wages and income to improve GDP growth and ensure distributive justice.
They need to guide government in improving social security systems and ensuring faster eradication of poverty.
M G Warrier, Mumbai
*Submitted version of letter published in BS on April 5, 2017
A rose is a rose…
The unanticipated response from readers all over the world to my Blog Post "RBI Pension Revision: No Man, No Problem" makes me humble.
This prompted me to make my blog easily accessible to viewers. Now you can access it direct at:
One reader told me that while writing about RBI Pension Revision, my thoughts seemed to be negative. He mentioned, all along he had taken me as one with a positive approach. I accepted the encouraging words and criticism with equanimity and thanked him. I will keep his concerns in mind as a positive guidance for future.
I believe positive thinking cannot be an escape route for being blind to the negative happenings or rather getting into a pedestrian mood when they surround us.
A spade cannot be anything else, even if we get sympathetic and avoid calling it by name.
And a rose will remain a  ROSE by whatever name I call it.
M G Warrier


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