Warrier's Collage 04112020 : Update on M G WARRIER's 2020 book

Welcome to Warrier's Daily COLLAGE November 4, 2020 Wednesday Your daily share of inspiration, writings - by you, for you : Curated by MG Warrier SATSANG https://youtu.be/bzLHJXQMCGA (Introduction to Vedanta) (Sarvapriyananda) Music https://youtu.be/XORxoZS8FtA (Movie: Barsaat : Hum ko sirf tum se pyar hai...) (Link courtesy: Ramesh Warrier) Quote for the day: " The best way to not feel hopeless is to get up and do something. Don’t wait for good things to happen to you. If you go out and make some good things happen, you will fill the world with hope, you will fill yourself with hope." -Barack Obama Collage Notice The book "Restoring Trust in Governance: India's 2020's Challenge" by M G WARRIER will be available for online purchase shortly and will be formally released once print copies are available. ***** ***** Good Morning M G Warrier AA US Elections 2020 1) The Guardian https://www.theguardian.com/us-news/ng-interactive/2020/nov/03/us-election-2020-live-results-donald-trump-joe-biden-who-won-presidential-republican-democrat 2) Indian Express https://indianexpress.com/article/world/us-election-results-2020-live-updates-donald-trump-joe-biden-votes-tally-president-predictions-6916817/ A Interaction 1) V T Panchapagesan Responding to Rangasayee (November 3): "Aditya Hridayam is about Sun God which we call Suryanarayanan... Diameter of Sun is 8,64000 miles. Distance from Earth, A Planet to Sun is to be multiplied by 108. It gives us Energy, Enthusiasm to live . In turn we have to show Empathy as a way of expressing our Gratitude. Hence Sage Agasthiar wanted RaMa to chant this mantra. Let us recite daily understanding this.....🙏 Be Well, V. T. Panchapagesan" 2) R Jayakumar The major part of Monday's Collage is occupied by information about MGW's earlier version of the Collage by the name Warrier's My Page, a monthly bulletin on financial matters, including foreign exchange, NPAs in PSBs, corruption in banks and gold management etc. I could only scan through them as these subjects are very hard for me to read and digest. I think the bulletin was his manual effort and not a printed version, and his posting in Thiruvananthapuram in year 2012-13 gave him time for this. Writing letters to the Editor and financial articles is his passion even now. Possibly he is busy readying his second book* on Financial matters for publication. We are proud of Mr Warrier's efforts and wish him all the best and success for his writing and editing job/hobby. R Jayakumar (Thanks Jayakumar for the kind words. I retired from DGBA, Mumbai availing OERS in 2003. My Page also was a manual compilation. Included to remember Vitalinfo, a daily message we were receiving those days from Mangesh Tarambale. *Update about my third book is appearing in Collage today. Motive is remaining active. But finding a little stressful doing things single-handed especially to manage catching up with advanced technology-Warrier) B RBI can https://www-livemint-com.cdn.ampproject.org/c/s/www.livemint.com/news/india/why-rbi-governor-is-playing-mr-bond/amp-11604243731068.html No need to speculate. Please see my article that follows. C Monetary Policy Committee Institutionalization of Monetary Policy Committee* M G Warrier October 2020 meeting of RBI’s Monetary Policy Committee (MPC) was rescheduled as there was uncertainty about the filling up of the vacancies on the committee caused by expiry of the tenure of three central government nominees with the previous meeting of MPC. Responding to media speculation about possible consequences of policy standstill on this count, I sent a brief response to a newspaper with the following observations: “There is substance in the allegations about procrastination from Govt side in crucial top-level appointments. Actually, a system of allowing incumbents to continue for short periods even after the contracted tenure on crucial policy bodies, in exceptional circumstances can be thought of. But, the fear about any harm to the economy due to a brief delay in reconstitution of MPC has no valid basis. Especially when the report itself is not expecting a change in base rates. Other than base rates, all other aspects on which MPC deliberate and RBI makes announcement simultaneously with the announcement of Monetary Policy are internal for the central bank. Those aspects are monitored by RBI and action taken by the central bank on a day to day basis.” Monetary Policy Committee Monetary Policy Committee (MPC) is a six member committee formed after the amendment in the RBI Act 1934 through the Finance Act, 2016 with the basic objective of maintaining price stability and accelerating the growth rate of the economy. Sukhmoy Chakravarty Committee which studied the Indian Monetary System decades ago had set out price stability, economic growth, equity, social justice, promoting and nurturing the new monetary and financial institutions as the objectives of the monetary policy in India which remained embedded in the institutional mind of RBI since then. Recalled this to reemphasize that the three day bimonthly deliberations of the MPC have much more content and context than the generally perceived base rate tinkering. The members of the present MPC are: 1 Governor of the RBI- Chairperson, ex-officio (Shri Shaktikanta Das) 2 Deputy Governor of the RBI, In-Charge of Monetary Policy 3 One Officer of the RBI nominated by the RBI Central Board 4 Jayant R Verma, Professor & Dean, IIM, Ahmedabad 5 Ashima Goyal, Author and Editor of several books on economics. 6 Dr Shashanka Bhide, Senior Advisor, National Council for Applied Economic Research. Last decade was eventful for the Indian Economy, particularly for the financial sector. That naturally kept RBI in the limelight all through for good and bad reasons. All the three governors ( Duvvuri Subbarao, Raghuram Rajan and Urjit Patel ) who preceded Shaktikanta Das who became governor in December 2018 went through turbulent times during their stay at Mint Road and wrote books about their experiences post-tenure. Of the three, Raghuram Rajan whom media at one stage described as Rockstar Governor and Bond of the Mint Street did bring RBI to the central stage and instill confidence in Team RBI. Rajan will be remembered in RBI for his untiring efforts to retrieve that institution from the damage caused by a committee which went all the way to disintegrate India’s central bank. The reference is to the Financial Sector Legislative Reforms Committee (FSLRC). Almost the one-third of his three year tenure was wasted or gainfully spent to ensure that RBI was not truncated in the process of implementing FSLRC recommendations. It has to be said to the credit of Dr Rajan that he not only controlled damage, but also strengthened the policy formulation and implementation apparatus in RBI by statutorizing the Monetary Policy Committee by facilitating an appropriate amendment to the RBI Act, 1934. The Monetary Policy Statement issued by RBI on October 9, 2020, inter alia stated: “ The MPC at its meeting today decided to: • keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent. Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent. • The MPC also decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. All members of the MPC – Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Mridul K. Saggar, Dr. Michael Debabrata Patra and Shri Shaktikanta Das – unanimously voted for keeping the policy repo rate unchanged and continue with the accommodative stance as long as necessary to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward. Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Mridul K. Saggar, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to continue with this accommodative stance at least during the current financial year and into the next financial year, with Prof. Jayanth R. Varma voting against this formulation.” Only those who were following the pre-MPC days media speculations about changes in RBI’s base rates that preceded and followed the monetary policy announcements will understand the relief the RBI Governors started enjoying with the conversion of the Technical Committee which was advising on Monetary Policy into the statutory MPC now in position. The present central government has allowed MPC to remain an expert body of professionals with freedom to deliberate and decide what is best in the national interest in the given context. Media assessment is that the economy is rebounding faster than earlier expected after the disappointing negative trends in GDP noticed in the first half of calendar 2020. But the hurdles in the path of recovery remain. Not only are many indicators still adverse, even the optimist of forecasters expect the fiscal year 2020 output level to be crossed only in late fiscal year 2022. The first half of 2020 witnessed extreme economic weakness which created their own victims who need help. They include smali and medium enterprises which have depleted their capital, millions of households which lost assets or have become more indebted. Result: The risk appetite has fallen sharply. The newly-constituted Monetary Policy Committee’s challenge was to continue its support for growth without compromising credibility. Prudently, the RBI and the MPC focused on improving rate transmission, as the rates for borrowers have not fallen as much as the RBI’s cuts to the repo rate this year. Neelkanth Misra, Co-Head of APAC Strategy and India Strategist for Credit Suisse, writing in the Indian Express observed: “The most important change, though, was the unambiguous messaging on its assessment of inflation, which should help buyers of government bonds take the risk. The Monetary Policy Report states that 80 per cent of the inflation deviation from target is due to a supply shock in food and the elevated taxes on fuel, and that the MPC intends to look through this period of high inflation. Banks or other bond investors that refrained from purchasing government bonds because they felt the RBI would increase interest rates at some point to comply with its legal mandate, would be reassured by this clear communication.” His caution about future is worth remembering. He said: “Economic challenges may persist for the foreseeable future. The economic scars of the last six months are likely to take time to heal, the financial system still needs a major overhaul, and the only permanent solution to the large Balance of Payment surplus is stronger domestic demand, which will take time, and is best achieved through a well-designed fiscal stimulus. The RBI and the MPC, which have been proactive, creative and accommodative so far, may have to stay so for a while longer.” RBI’s awareness about this position is articulated as much as possible in the October 9, 2020 policy announcement and subsequent media interaction. Looking beyond 2020 Like Pandemic period has been a period of introspection and In-house cleansing for individuals and people world over, the coming new year eve is good time for introspection about policy perspectives of institutions and governments. We can conveniently use the chapter “Competitive Monetary Easing: Is it Yesterday Once More?” in Dr Raghuram Rajan’s book “I Do What I Do” as a background note for initiating a discussion on the subject. The issues and questions he has raised in those 16 pages will remain relevant for those in charge of Monetary Policy for a long time. I will conclude this article calling your attention to the opening observation made by the former RBI Governor and flagging a couple of concerns expressed by him. Introducing the subject he said: “As the world seems to be struggling back to its feet after the great financial crisis, I want to draw attention to an area we need to be concerned about: the conduct of monetary policy in this integrated world. A good way to describe the current environment is one of extreme monetary easing through unconventional policies.” The concerns he expressed include the spill overs from unconventional policies followed to get over temporary crises and the desirability of having international monetary policy coordination. We will revisit these subjects in coming months. *Submitted version of my article published in The Global ANALYST, November 2020. The book "Restoring Trust in Governance: India's 2020's Challenge" by M G WARRIER will be available for online purchase shortly and will be formally released once print copies arrive.


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