Gurumurthy says it is for RBI to decide on the quantum of dividend it pays to the government.
New Delhi: Just ahead of the crucial Reserve Bank of India (RBI) board meeting on 19 November, its part-time director S. Gurumurthy has said that the current impasse between the central bank and the Narendra Modi government is “not a happy thing”, and called for easier lending norms, since India is a bank-driven economy.
The comment comes amid the ongoing rift between the finance ministry and the RBI over several issues, including capital framework of the central bank and easing of lending norms for the non-banking financial company sector.
Gurumurthy said the impasse could be considered “almost normal” in the current ecosystem. He added that the country’s liquidity problem could have been addressed if the government had the power to print currency, like in the US.
“The government of India has given up the right to print the rupee in 2002, so it cannot print money to infuse liquidity,” Gurumurthy said, just ahead of the crucial RBI board meeting on 19 November.
Gurumurthy, a chartered accountant by training, was appointed as part-time director on the RBI board by the Modi government just a few months ago.
Recently, when RBI deputy governor Viral Acharya lashed out at the Centre on issues relating to the central bank’s autonomy, escalating the standoff between the RBI and the government to an unprecedented level, Gurumurthy lodged a complaint with RBI governor Urjit Patel.
Also read: We might be headed towards a massive showdown between Narendra Modi govt and Urijit Patel’s RBI
RBI can decide on dividend
Speaking on ‘State of the Economy: India and the World’ at the Vivekananda International Foundation (VIF), Gurumurthy, chairman of the foundation, said it was for the central bank to decide on the quantum of dividend it pays to the government. “In this (case), some policy has to be worked out,” he said.
The RBI currently has reserves of 27 per cent of its total assets. Gurumurthy pointed out that most central banks do not have this kind of reserves.
The problem of NPAs
Gurumurthy also called the non-performing assets problem in the Indian banking system a “creation of the UPA government” and reckless lending by the banks. But he also said the industry had been crippled by the imposition of stringent provisioning norms for bad assets.
“The way we are forced to make provisions (for bad assets) in one go has created the problem,” he said, adding that it should have been done in a phased manner over a period of time.
He added that India is a bank-driven economy, unlike many other countries. “In a bank-driven economy, if you are restricting the banks, you are restricting the economy,” he said, adding that recapitalisation of public sector banks can be done with bonds.
Liquidity is critical
Underlining the need to think out of the box for solutions, he said liquidity is critical for the micro, small and medium enterprises, which form the backbone of the Indian economy.
Gurumurthy, who termed demonetisation as a “corrective, bold and necessary” measure, said that led to a cash crunch in the MSME sector.
Also read: Ugly fight to control RBI is hurting India
Praise for Trump
Gurumurthy, who is also co-convenor of the RSS-affiliated Swadeshi Jagran Manch, called US President Donald Trump a “determined leader” and praised him for being able to take extraordinary steps to revive the American economy.
He said globalisation was a thing of the past and called for heavy import duty curbs to contain the country’s current account deficit, and added that institutions such as the World Trade Organisation, World Bank and International Monetary Fund, had failed.
Last four years “not a happy things” happens in Mr. Modi’s administration, with lot of expectations people vote for him but he disappointed all of us . The grate damage is not only our economy but also to our Democratic, and autonomy of RBI, CBI.
From whatever little I understand of Economics, Modi government is trying to set up a giant PONZI Scheme. 3 lakh crores which it is trying to get out of RBI is peanuts to support any national level development. With this amount, businesses, small and big, will borrow from banks only to HONOR their INTEREST payment obligations. Hence they will postpone getting branded as NPAs. But more interest will become payable AGAIN three or six months down the line. In engineering parlance, this is called a “positive feedback loop”.
Borrowings out of this 3 lakh crores will not be sufficient to set up additional capacities for all the borrowers, which could generate more output, more profit, which could be used to GRADUALLY lessen each one’s borrowings and hence each one’s interest payment requirements.
Are we headed for a systemic collapse? Will that be the unique contribution of Mr Modi who came in on the pretext of doing Vikas, and we believed him? I hope my understanding of Economics is all wrong; I desperately hope I’m proved wrong.
For someone on the Board of the RBI, gentleman has some interesting views. 2. More seriously, the RBI’s reserves are not in fact 27% of its assets, more like 7%, against a global norm of 12%. This has been explained by a number of experts. In layman’s terms, what is looking like reserves is really unrealised profits on gold and foreign exchange. 3. At the end of a full term in office, the constant refrain of blaming the predecessor – not always correctly – for what is wrong begins to grate. One does not recall President Barack Obama, once the campaign was over and done with, blaming President George Bush for the global financial crisis, or the wars in Iraq and Afghanistan. The American people elected him to fix things that looked broken. He claimed to have the competence to get the job done. They trusted him, and he delivered, sufficiently to get elected to a second term and then to leave with very high approval ratings.
In my book of laissez faire economics, Gurumurthy is a quack.