RBI monetary policy: Growth, with caveats (भारतीय रिज़र्व बैंक की मौद्रिक नीति: चेतावनी के साथ वृद्धि) APRIL 07, 2017

The Hindu Editorial

RBI monetary policy: Growth, with caveats (भारतीय रिज़र्व बैंक की मौद्रिक नीति: चेतावनी के साथ वृद्धि) APRIL 07, 2017

The Centre must pay heed to Governor Urjit Patel’s plain speak (केंद्र को राज्यपाल उर्जित पटेल की स्पष्ट विचार को ध्यान देना चाहिए)

The central bank was not expected (अपेक्षित होना) to tinker (इधर-उधर) with key policy rates in its first monetary policy review of 2017-18 unveiletod (अनावरण) on Thursday, following its decision (निर्णय) to shift from an accommodative (अनुकूल) to a neutral monetary policy stance (रुख) in February. The Monetary Policy (मौद्रिक नीति) Committee  by Reserve Bank of India Governor Urjit Patel has, in fact, decided to raise the rate at which the central bank borrows (उधार) funds from banks (the reverse repo rate) by 25 basis points, from 5.75% to 6%, while leaving other policy rates untouched (बिना छेड़-छाड़ के) This marginal change is aimed (उद्देश्य) at sucking out (सोखना) from the system excess liquidity (अत्यधिक तरलता) that remains a lingering concern (चिंता का विषय), despite coming off its peak in the aftermath of the demonetisation exercise. The RBI has also proposed a new liquidity management tool that awaits government approval, making the draining (सोखना) of surplus liquidity a critical priority (महत्वपूर्ण प्राथमिकता) all through this year. The efficacy(प्रभावकारिता) of the RBI’s liquidity management toolkit will impinge (टकराना) on another key concern: inflation (मुद्रास्फीति), which is expected to climb to 5% by the second half of this fiscal. The RBI says achieving the stated target of 4% inflation even next year could be challenging, with no “lucky disinflationary forces” expected, such as benign commodity and oil prices. It has also pointed to a one-time upside risk to inflation with the implementation (क्रियान्वयन) of the Goods and Services Tax.

The RBI is quite optimistic (आशावादी) about an uptick in the economy this year, projecting 7.4% growth in Gross Value-Added, compared to 6.7% in 2016-17. Along with improved prospects (बेहतर संभावनाएं) for the world economy a rebound in discretionary (विवेकाधीन) consumer spending (खर्च) at home is likely, in line with the “pace of remonetisation” and investment (निवेश) demand on account of lowered interest rates. While the government may take heart from the higher growth projection (कल्पना) , it must pay equal heed to Mr. Patel’s plainspeak on four key issues (महत्वपुर्ण मुद्दे). First, the need to urgently (तुरत) resolve the surge (तेजी से बढ़ना) of bad loans on bank books, for which the RBI will unveil (दिखाना) a new Prompt (शीघ्र) Corrective Action framework (ढांचा) by the middle of this month. Without this, a virtuous (गुणी) cycle of healthy credit growth necessary for investment and job creation will remain elusive (दुग्राह्य ). Second, the RBI has reminded (चेताना) the government there will be “clearly more demand for capital” in the coming days. The government’s allocation of Rs.10,000 crore to recapitalise public sector banks is obviously (स्पष्ठ) inadequate (अयोग्य). Third, while banks have reduced (घटाना) lending rates, the RBI has pointed out there is room for more cuts if rates on small savings schemes are corrected. Though a formula-based rate was adopted to set these rates last April, small savings schemes still deliver 61-95 basis points higher returns than what they should if the formula is followed, as per the RBI. Most important, the government must not ignore Mr Patel’s categorical (निर्धारक) call to eschew (छोड़ना) loan waivers (छूट) of the kind just announced (घोषणा) in Uttar Pradesh. This, he warned (चेतावनी), would crowd out  private investments and dent (खरोंच) the nation’s balance sheet.