scorecardresearch
Follow Us:
Thursday, May 19, 2022

Speak up, Guv

There are very few public policy levers for handling the impending slowdown. By and large, India has neither the fiscal space nor the operational capability to undertake large public works programmes so as to prop up demand to reverse any downturn in good measure.

Written by Theindianexpress |
November 13, 2008 1:37:50 am

There are very few public policy levers for handling the impending slowdown. By and large, India has neither the fiscal space nor the operational capability to undertake large public works programmes so as to prop up demand to reverse any downturn in good measure. Hence, it is quite likely that GDP growth in 2009 will be slower than that seen in 2008. When adverse shocks affect firms, a key factor which influences the outcome is the capability of the financial system. A sophisticated financial sector is required, which will rationally evaluate the prospects of firms, and support the functioning of the better firms with infusions of debt and equity capital. The financial sector will also play a key role in mergers and acquisitions, so that productive assets fall into the best hands, even if this involves setbacks to big-name firms that are visible in India today.

For finance to be able to perform these complex roles in an atmosphere of calm confidence, two things are required. The first is that there needs to be ample rupee liquidity and ample dollar liquidity, so that managers of financial firms are not running from pillar to post dealing with crises. In recent days, many banks in India have raised interest rates on deposits. They are, doubtless, hoarding liquidity, given fears that the money market might choke up. The RBI governor needs to address the insecurities of banks by coming out with a major speech where he makes clear his analytical framework and sketches policy responses to future events. If banks are more confident about the RBI’s operating procedures of monetary policy, deposit rates and hence lending rates will go down and not up.

The second front that needs to be opened is an urgent de-bottlenecking of financial regulation. The R.H. Patil, Percy Mistry and Raghuram Rajan reports have sketched a well-thought-out programme for financial sector reforms. The delays in implementation of these reports have cost us dear. As an example, the problems of the money market, non-banking financial companies and mutual funds were critically about the lack of implementation of bond market reforms detailed in these three reports. There is now no time to lose. A well-functioning financial system must be urgently obtained.

Best of Express Premium

On marital rape, regressive notions undermine autonomy of womenPremium
Inflation up, FMCG firms hike rates, cut pack volume and weightPremium
Explained: Lucknow’s Laxman connection, and a large mosque built in...Premium
‘Pigeon closes eyes as cat advances’: 1991 Lok Sabha, when Um...Premium

For all the latest News Archive News, download Indian Express App.

  • Newsguard
  • The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.
  • Newsguard
Advertisement
Advertisement
Advertisement
Advertisement