Business Economics & Services Team (BEST)
Business Economics & Services Team (BEST)
Be Courageous Rajan: Keep Nation's Interest First
The media is hell bent on pushing RBI Governor Raghurm Rajan to do the most expected and that is slashing the interest rate. There are suggestive stories appearing with regularity in almost all newspapers about the imminent rate cut, He seemed to be a listener most of the time the cacophony of demands and sometimes veiled threats. But Rajan gives some indications, of late, that he is his own man and can rough up pressure exerted from any source, however powerful they may be.
RBI Governor's lambasting of low debt recovery from the corporate defaulters is significant. Corporate can roll out umpteen reasons for the low recovery, such as economic slowdown, high cost of capital, widespread sickness etc. The outstanding value of debt accumulated over the years works out to quite a tidy sum; something close to Rs 2.5 lakh crore. This is enough to fund the entire Swatch Bharat or enough to build houses for a sizable number of homeless people or providing basic health to millions of people.
Importantly, a causal look at the time series on defaults indicates that it was prevalent even during the boom years also. There are many cases studies, which bear testimony to the fact most of the accumulated debts are due to mismanagement, family disputes, willful default and diversion of funds disbursed for other activities including speculative operations.
Rajan is not new to such situations. In the past also, he experienced similar contradictions and aberrations. His magnum opus " Fault Lines" is a crystallization of his hands-on experience and thoughts on crony capitalism and how it has subverted the market polices to the advantage of a few and powerful.
By now the RBI Governor must have realized the opaqueness of the Indian financial sector, which is mired in myriad of loosely cobbled up policies, exemptions and conditions that are heavily loaded in favor of certain sections of the people. For instance, there are policies that act as cushion against higher interest rates. A case in point is the 5 percent interest subsidy enjoyed by certain segments of industry like textiles under Technology Up-gradation Fund(TPF), which is a hotbed of corruption. Some of the well run industries get funds at zero or negligible rate. The public would like to know how many such companies are defaulting teh reapymnets, which comes to them almost free of interest rate. Rajan should ask himself why hell break loose when the capital market dithers and all out cries at high decibels resonate the Indian media space. Death due to negligence, poverty or high handedness of officialdom go unreported or pushed to innocuous corners. This is the great Indian paradox.
Now there is a new pitch on cut in interest rate. A snap poll conducted by a powerful media group found that the possibility of a rate cut in December this year is remote. The survey claims that it is the perception of the entrepreneurs, whom they have surveyed. The survey also suggests that possibly in February 2015, a rate cut can be expected. I do not know the coincidence of the so called survey and freeloaders charge made by Rajan on the debt defaulters.
The RBI Governor has been put into a spot when the finance minister has aligned with the protagonists of interest rate reduction. The FM believes that a reduction in interest rate will kick start the economy. I sincerely hope that the erudite finance minister is not swayed by the well orchestrated campaign conducted by the vested interests. Rajan should realize that two of his immediate predecessors were not decorated as much as he himself, but they valiantly stood the ground to see that monetary policies are rolled out based on the ground realities and not according to the whims and fancies of the concerned minister or the media reports. One expects Rajan also to show some courage and stick to his rules even if that costs him dearly. That is what his two immediate predecessors did and they will be remembered for that courage and conviction.
Business Economics & Services Team (BEST)
Be Courageous Rajan: Keep Nation's Interest First
The media is hell bent on pushing RBI Governor Raghurm Rajan to do the most expected and that is slashing the interest rate. There are suggestive stories appearing with regularity in almost all newspapers about the imminent rate cut, He seemed to be a listener most of the time the cacophony of demands and sometimes veiled threats. But Rajan gives some indications, of late, that he is his own man and can rough up pressure exerted from any source, however powerful they may be.
RBI Governor's lambasting of low debt recovery from the corporate defaulters is significant. Corporate can roll out umpteen reasons for the low recovery, such as economic slowdown, high cost of capital, widespread sickness etc. The outstanding value of debt accumulated over the years works out to quite a tidy sum; something close to Rs 2.5 lakh crore. This is enough to fund the entire Swatch Bharat or enough to build houses for a sizable number of homeless people or providing basic health to millions of people.
Importantly, a causal look at the time series on defaults indicates that it was prevalent even during the boom years also. There are many cases studies, which bear testimony to the fact most of the accumulated debts are due to mismanagement, family disputes, willful default and diversion of funds disbursed for other activities including speculative operations.
Rajan is not new to such situations. In the past also, he experienced similar contradictions and aberrations. His magnum opus " Fault Lines" is a crystallization of his hands-on experience and thoughts on crony capitalism and how it has subverted the market polices to the advantage of a few and powerful.
By now the RBI Governor must have realized the opaqueness of the Indian financial sector, which is mired in myriad of loosely cobbled up policies, exemptions and conditions that are heavily loaded in favor of certain sections of the people. For instance, there are policies that act as cushion against higher interest rates. A case in point is the 5 percent interest subsidy enjoyed by certain segments of industry like textiles under Technology Up-gradation Fund(TPF), which is a hotbed of corruption. Some of the well run industries get funds at zero or negligible rate. The public would like to know how many such companies are defaulting teh reapymnets, which comes to them almost free of interest rate. Rajan should ask himself why hell break loose when the capital market dithers and all out cries at high decibels resonate the Indian media space. Death due to negligence, poverty or high handedness of officialdom go unreported or pushed to innocuous corners. This is the great Indian paradox.
Now there is a new pitch on cut in interest rate. A snap poll conducted by a powerful media group found that the possibility of a rate cut in December this year is remote. The survey claims that it is the perception of the entrepreneurs, whom they have surveyed. The survey also suggests that possibly in February 2015, a rate cut can be expected. I do not know the coincidence of the so called survey and freeloaders charge made by Rajan on the debt defaulters.
The RBI Governor has been put into a spot when the finance minister has aligned with the protagonists of interest rate reduction. The FM believes that a reduction in interest rate will kick start the economy. I sincerely hope that the erudite finance minister is not swayed by the well orchestrated campaign conducted by the vested interests. Rajan should realize that two of his immediate predecessors were not decorated as much as he himself, but they valiantly stood the ground to see that monetary policies are rolled out based on the ground realities and not according to the whims and fancies of the concerned minister or the media reports. One expects Rajan also to show some courage and stick to his rules even if that costs him dearly. That is what his two immediate predecessors did and they will be remembered for that courage and conviction.
