LETTERS TO THE EDITOR
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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.
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.
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.
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.