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The Hindu Business Line - - THINK -

Govt, RBI con­flict

Moody’s ob­ser­va­tion that higher oil prices, sharp ru­pee de­pre­ci­a­tion, ris­ing bor­row­ing costs due to tight­en­ing of mone­tary pol­icy and the slow pace at which cases are be­ing re­solved un­der NCLT are among a host of fac­tors that will dent In­dia’s econ­omy, is not far from the truth. Un­der th­ese cir­cum­stances, the dif­fer­ences of opin­ion among the gov­ern­ment and the RBI will do more harm for the econ­omy. The con­flict is on sev­eral is­sues, in­clud­ing re­lief to the power sec­tor which is reel­ing un­der fi­nan­cial stress, han­dling of weak pub­lic sec­tor banks, ad­dress­ing liq­uid­ity prob­lems faced by the NBFC sec­tor in the wake of the de­fault cri­sis at IL&FS, and re­lax­ing pru­den­tial norms for MSMEs. An­other im­por­tant point of con­flict is the re­port that the gov­ern­ment is ini­ti­at­ing con­sul­ta­tions un­der Sec­tion 7 of the RBI Act, which is noth­ing but en­croach­ing upon the au­ton­omy of the RBI. This type of open con­fronta­tion is not healthy for the coun­try’s econ­omy and it should be sorted out as early as pos­si­ble.

TSN Ray

Bheemavaram, AP

De­fy­ing court or­ders

Apro­pos ‘Supreme contempt’ (No­vem­ber 9), the de­fi­ance of High Court (re­stric­tions on dahi handi in Mum­bai, for in­stance) and Supreme Court (crack­ers, Sabri­mala, etc) or­ders points to two stark re­al­i­ties. One, the Supreme Court’s lim­ited in­flu­ence in root­ing out deeply en­trenched so­cial and re­li­gious prac­tices. Ap­pli­ca­tion of ob­jec­tive ju­di­cial anal­y­sis and as­ser­tion of con­sti­tu­tional obli­ga­tions do not cut ice in such cases. And, two, ac­tive sup­port of law-en­forc­ing au­thor­i­ties is vi­tal for the ex­e­cu­tion of such tough ver­dicts. A pas­sive role or, worse, ac­tive op­po­si­tion of the Court’s or­ders by the rul­ing party arises from a dan­ger­ous mis­un­der­stand­ing of the du­ties of the ex­ec­u­tive and the ju­di­ciary. The present de­vel­op­ments do not au­gur well for the health of our repub­lic.

YG Chouk­sey

Pune

The dol­lar’s dom­i­nance

This refers to ‘How dol­lar be­came king of global fi­nance’ (No­vem­ber 9). A dol­lar based mone­tary sys­tem un­fairly al­lowed the US to bor­row at record low in­ter­est rates, which helped bankroll its mil­i­tary and eco­nomic pro­grammes. World­wide, there are tril­lions in overnight re­pos be­tween banks that use US Trea­suries as col­lat­eral for th­ese short-term loans. Should th­ese in­stru­ments of ex­change be­came sus­pect and unac­cept­able as col­lat­eral, fi­nan­cial mar­kets would ef­fec­tively col­lapse. Should their value plunge, banks’ cap­i­tal ra­tios may go be­low statu­tory lim­its. If there were an ac­tual de­fault then banks would il­le­gally be hold­ing a de­faulted in­stru­ment as part of their pri­mary cap­i­tal. Yet, the US, as cus­to­dian and printer of the world cur­rency, is re­lent­lessly pil­ing up na­tional debt ex­ceed­ing its GDP and seems to hold its obli­ga­tions too lightly. Such mone­tary reck­less­ness ought to have pulled down the dol­lar value but as other eco­nomic blocs are in sta­sis, in­vestors con­tinue to shift cash to the US, boost­ing the dol­lar with in­creased in­flows and for safe park­ing. Much as the global ex­change would like to get a bas­ket of ma­ture cur­ren­cies to re­place a cav­a­lier dol­lar, the US, given the depth, spread and trans­parency of its cap­i­tal mar­kets, could right­fully ac­quire the strength to claim last­ing pre­dom­i­nance. And ev­ery other econ­omy is com­pelled to un­der­write its uni­ver­sal hege­mony.

R Narayanan

Navi Mum­bai

Curb­ing round-trip­ping

While reg­u­la­tions al­low­ing NRIs to hold a non-con­trol­ling stake in for­eign funds and ex­empt­ing PIOs from the own­er­ship re­stric­tions have en­cour­aged in­vest­ments in the econ­omy, a ro­bust frame­work is re­quired to curb round-trip­ping or money-laun­der­ing via il­le­gal in­te­gra­tion/place­ment of cash. To con­trol the fis­cal deficit and stem ru­pee de­val­u­a­tion, en­cour­ag­ing long-term in­vest­ments in fixed-in­come/bond in­stru­ments ought to be backed by mi­cro-sur­veil­lance of trad­ing/mar­ket ac­tiv­i­ties, end-us­age of funds, IPOs/hold­ing pat­terns and data se­cu­rity. Al­though favourable macroe­co­nomic poli­cies and rel­a­tively higher in­ter­est rates fa­cil­i­tate in­come growth, ac­count­abil­ity of par­tic­i­pants is a pre­req­ui­site to pre­serve mar­ket good­will and in­vestor-sen­ti­ment.

Girish Lal­wani

New Delhi

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