Bring down borrowings: RBI Governor to Centre, states

Patel also made a case for continuous support towards recapitalisation of public sector banks.

By: Express News Service | Gandhinagar | Published:January 12, 2017 3:30 am
New Delhi: RBI Governor Urjit Patel after the Financial Stability and Development Council (FSDC) meeting at North block in New Delhi on Thursday. PTI Photo by Subhav Shukla (PTI1_5_2017_000018B) RBI Governor Urjit Patel (PTI Photo)

With the Union Budget just three weeks away, Reserve Bank Governor Urjit Patel on Wednesday asked the Central and State governments to bring down the high borrowings while keeping the inflation low and stable for long-lasting higher growth.

“Our general government deficit (that is borrowing by the Centre and states combined) is, according to IMF data, amongst the highest in the group of G-20 countries. In conjunction, the level of our general government debt as a ratio to GDP is cited by some as coming in the way of a credit rating upgrade,” Patel said while speaking on the second day of Vibrant Gujarat Global Summit.

“We have to take cognisance of these comparisons and facts as we go forward to make progress. Specifically, this will help us to better manage risks for ourselves, and thereby mitigate financial volatility,” he said. “Borrowing even more and pre-empting resources from future generations by governments cannot be a short cut to long-lasting higher growth. Instead, structural reforms and reorienting government expenditure towards public infrastructure are key for durable gains on the growth front,” Patel said.

He said low and stable inflation is an essential prerequisite for having a meaningful interest rate structure whereby decisions by savers and investors help achieve maximal allocative efficiency in an economy whose investment rate has to increase for better growth outcomes. “We have to continue to press ahead for a more fluid, smooth transmission of monetary policy, as also enhance the formulaic linkage between changes in policy rates and other rates, including administered ones,” he said.

Stating that the RBI has already notified inflation target of 4 per cent, Patel said the effort should be to achieve the objective of keeping prices under check on a durable basis, given the progress already made.

“For us, in India, good policy housekeeping should be the cornerstone. It is easy and quick to fritter away gains regarding macroeconomic stability. But hard and slow to regain them,” he said.

Cautioning on credit guarantees, Patel said, “while some government guarantees and limited subventions can help, steep interest rate subventions and large credit guarantees also impede optimal allocation of financial resources and increases moral hazard. The mandates for these have to be narrow, and thus perforce be deployed judiciously, within a regulatory framework…”

He said guarantees increase government’s contingent liabilities, and add to risk premia for its own borrowing. “Guarantees per se at the end of the day have limited utility in solving important sector issues…,” he said.

Patel also made a case for continuous support towards recapitalisation of public sector banks arguing that “a well capitalised domestic banking system enhances the comfort of the various stakeholders to conduct business in the offshore IFSC as well”.

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  1. A
    ams
    Jan 23, 2017 at 11:27 pm
    Patel is under fire to show some b @@ lls and finally making some token statements. Dont worry election-fail-but-still-FM of India Arun Jaitley. You got nothing to worry from this Patel boy.
    Reply
    1. A
      Anil Bharali
      Jan 21, 2017 at 1:47 am
      RBI governor must speak clearly where that borrowed money from IMF has gone ?? where the major part goes to into the pockets of crony capitalists in name of Nation or the due share to the common citizens ??
      Reply
      1. A
        Anil Bharali
        Jan 21, 2017 at 1:47 am
        RBI governor must speak clearly where that borrowed money from IMF has gone ?? where the major part goes to into the pockets of crony capitalists in name of Nation or the due share to the common citizens ??
        Reply
        1. K
          Kadu
          Jan 23, 2017 at 8:36 am
          When attending a trade function in Gujarat state RBI governor might have to address about the borrowings of Gujarat state since year 2000. Now it is the highest debtor and corrupted state in India. To check inflation in control supply and demand should be monitored by Food and Supply dept which comes under collector and mamlatdar of the district. I have never seen any officials of this department to monitor the commodities prices in the town. hey sitting in AC office, tea and snack, the pockets are swelling with under table money. Same thing in Seva sadan Anand too.
          Reply
          1. I
            Ind
            Jan 12, 2017 at 12:49 pm
            ISRO is responsible for dismal performance of Indian Stock Markets.
            Reply
            1. N
              Needhi
              Jan 24, 2017 at 9:51 am
              He is not going to speak that.
              Reply
              1. E
                EssPee
                Jan 24, 2017 at 12:05 pm
                Mr. Patel is partially right. Borrowings should be determined by their deployment and expected real and social returns and dividends.
                Reply
                1. I
                  Indian
                  Jan 24, 2017 at 4:08 am
                  RBI governor has lost the posts dynamic powers after the global flopshow of demonetisation. So better keep quiet till your term end and let ur boss finance ministry speak till a capable and efficient Governor replaces Mr.Patel.
                  Reply
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