|
|
|
Current economic scenario not like 1991 crisis: Jalan
|
|
|
|
Top Stories |
|
|
|
|
SME Times News Bureau | 06 Nov, 2018
The sharply depreciating rupee amidst rising global oil prices and the
massive foreign funds outflow from the capital market are not crises
comparable to the likes of the balance of payments (BoP) emergency India
experienced in 1991 because the country's fundamentals are stronger
than before, its BoP is strong and it has one of the highest levels of
foreign exchange reserves, says former RBI Governor Bimal Jalan.
On
the Reserve Bank of India (RBI) refusing to raise its key lending rate
in October as a way to counter the falling rupee and the fund outflows,
Jalan told IANS in an interview that in setting its interest rates the
central bank's monetary policy committee has its own set of
considerations like inflation, growth and the global economic scenario.
Instead,
Jalan, also a former Finance Secretary and Chairman of the Prime
Minister's Economic Advisory Council, says in his latest book -- "India
Ahead 2025 and Beyond" -- that though the country's fundamentals are
much stronger today, it faces several old and new challenges in the area
of politics, economics and governance.
"What is happening to the
rupee is not a crisis... it is not a situation like in 1991 when we had
a grave balance of payments situation. Now we have a much better
ability to intervene, the economy has high capacity, we have
hi-technology... our fundamentals are strong," he said in reply to a
question.
On the ongoing sharp foreign fund outflows from the
capital market, Jalan pointed to the earlier flush of inflows in the
preceding period.
"Financially we are in a much stronger position
now than, for instance, we were during the Asian financial crisis in
the nineties. We were able to handle that crisis, and we can handle this
outflow situation now," he said.
The Asian financial crisis was a
sequence of currency devaluations and other events that began in
mid-1997 and spread through many Asian markets. The currency markets
first failed in Thailand and the contagion spread rapidly throughout
Southeast Asia, in turn causing stock market declines and reduced import
revenues.
On the other hand, the former Governor pointed to the
need for reform in the wider area of political economy as elaborated in
his latest book, which would include strengthening the prudential,
provisioning and capitalisation norms of state-run banks to bring them
in line with the best international standards and reduce the
possibilities of future financial crises.
The accumulated
non-performing assets (NPAs), or bad loans of banks, which have crossed a
staggering Rs 10 lakh crore, are a matter of great concern, he writes.
"PSBs
(public sector banks) have to decentralise. Banks report now to the
government, which should withdraw from the actual day-to-day governance
of banks," Jalan said.
"The government should restrict its role
to deciding on policy and monitoring the performance of banks. It has to
decide to do this reform."
He pointed out that some reform
measures, like the RBI's Prompt Corrective Action (PCA) framework for
banks and enactment of the Insolvency and Bankruptcy Code (IBC), had
been initiated to deal with the NPA crisis which had provoked
risk-aversion among banks and has been accompanied by a significant
decline in private corporate revenues and investment.
"All these measures could have been taken a little earlier... one or two years ago," he said.
Declining
to comment on the RBI-government relations, Jalan, instead, drew
attention to the many old and new challenges in the areas of politics
economics and governance that the country faces which are the focus of
his book.
"These can only be met if we are able to generate
sufficient political will to pursue the right policies and shake off the
dead weight of the past," he said.
The RBI has recently
underlined the importance of its autonomy and warned that the
government's focus on short-term goals could be harmful to the economy.
At
a public lecture in Mumbai last week, RBI Deputy Governor Viral Acharya
said undermining the regulator's independence could be "catastrophic",
citing the examples Argentina's former central bank chief, who resigned
following a dispute over the transfer of reserves, and the recent
criticism of their central banks' actions by the US and Turkish
Presidents.
Finance Minister Arun Jaitley retaliated by alleging
that the central bank looked the other way when indiscriminate lending
happened between 2008 and 2014 leading to the NPA crisis.
Media
reports earlier this week said that the government has invoked Section 7
of the RBI Act that empowers it to consult and direct the RBI to act on
issues that it considers necessary in public interest.
Facing
criticism for invoking a hitherto unused section to issue instructions
to the RBI, the government on Wednesday said that it respected the
autonomy of the central bank but within the framework of the RBI Act.
|
|
|
|
|
|
|
|
|
|
|
|
|
Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
|
64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
|
|
Daily Poll |
|
|
PM Modi's recent US visit to redefine India-US bilateral relations |
|
|
|
|
|
Commented Stories |
|
|
|
|
|
|
|
|