By Shivaji Sarkar
There is both good and bad news. India rises to 77th in ease of doing business, jumping 23 paces in World Bank ranking, which is good. But the Rupee is touching 74 to a dollar and the stock market moving up and down, which are matters of concern. The RBI versus Centre, having a spat or the confrontation between the two, wading into uncharted territory, is sending out a confusing signal.
Last year, India was at 100th position and 142nd in 2014 in WB ranking. This jump is a shot in the arm for the Modi government, ahead of the impending elections. The WB says that India has done well in six of the 10 parameters such as construction permits, getting electricity, getting credit, paying taxes, trade across borders, enforcing contracts and resolving insolvency.
This means a lot. It means more people around the world may be willing to come to India either to set up shop or transact with Indian business or government organisations. Simply put it means somewhere the government has changed and has stopped the nagging and unnecessary interference. This should augur well.
But there are glitches. Inflation though in a band, is not stable. The prices are varying at domestic level. At the international arena it is in a bumpy region. As rupee decelerates, prices of export and import vary every day, which impacts the domestic market, pricing and makes export prices volatile.
The most glaring impact is seen in petroleum prices. Almost 80 per cent of crude is imported and about 20 per cent is prospected within the country at half the cost. But when it comes to pricing, it is based on the day’s international price, with many questioning its prudence.
Worse, it impacts the stock market, which remains a factor in inviting investment. A choppy market creates a wary situation. So despite the government wanting, even with favourable WB certificates, all is not hunky dory.
The big question then is whether the government is at fault? Normally, it’s not. Businesses, despite the several ease of norms initiated, are dependent on various government steps despite its stance of neutrality. The government still finds itself doing a lot of hand holding. Indian businesses too are at fault. Since Independence, almost for the past 70 years, businesses themselves could not develop the confidence of being on their own. When they do well, they resent government asking even a simple question, but when they are in the slightest difficulty, they rush to the government for succour.
Then there is the bureaucracy, which feels that if there are no problems, it would become redundant. Thus, sometimes problems are deliberately injected. But the fact that businesses cannot do without government is testified by Donald Trump administration in the US. Howsoever the business houses may want, both government and businesses cannot fully chart out separate courses. They have to be in each other’s benevolent neighbourhood.
This clearly means the government cannot be wished away and that both must appreciate it. However, at the same time the two should be kept at an arm’s length from each other. Often this thin line is missed. If there is high NPA of banks today, the government is made to bear the brunt of its “policy failure”. The biz forgets that in 2008, when they were doing not so badly and did not need the huge lendings from the banks, at the back of the Lehman Brothers meltdown, they rushed to the government to “incentivize” them. Unfortunately, the government then did not act in a prudent manner and fell into the biz houses’ trap.
As a result, no biz house today says why they took such huge loans, which mostly they did neither need nor did repay. So the NPA is their doing and of course the government needs to take the blame because its interference in banks was not needed at that time. No doubt, both biz and government committed a fundamental mistake. Both had their understanding that public sector banks were “government properties” and that “public fund is nobody’s money”. So squandering it away became a national pastime.
Everybody forgot that it is the common man’s hard earned money. They also forgot that it is poor man’s savings that has been running this country for the last 70 years. The government forgets that it has always been borrowing from that poor man through national savings scheme (NSS), Kisan Bachat Patra (KBP) or Public Provident Fund (PPF) and now directly delving into banks deposits. For NSS, KBP and PPF, the government had been paying attractive interest rates and that it partially helped the poor.
Now as the government and businesses scoop bank funds, it shakes the very foundation of banks and the poor man at every level loses his interest payments. The Rs 12 plus lakh crore NPAs have shaken the foundation of the economy.
The government and RBI spat is a result of this “basic misunderstanding”. The bank’s money is not the money of the government. It is people’s or nation’s wealth. The government as it repeatedly says should have kept away from the bank funds and the banks should have been allowed to take commercial decisions. There is no scope for treating it on compassionate ground and using it for doles. Finances are hard earned. Any non-commercial outlook creates the mayhem that the nation is facing today. Thus, the RBI has to be a tough regulator.
Despite all of it, even in the past, though Section 7 of the RBI Act was not invoked, the RBI is known to have acquiesced with government requests. The section provides for an emergency when the government can give instructions. In all regulations, such safety clauses are there lest the regulator itself becomes a monster.
Yes, the NPA boom was there because the RBI did not function as prudently as it is expected to. Politically, there could have been a different government then. But RBI also did not act prudently when it allowed the high-end currencies to be demonetised. So it appears if the regulator does not function, biz or government transgress the unwritten limits, the nation can face a crisis.
The country certainly has learnt a lot. The poor man has suffered and businesses are on a roll. The government needs to find out how the table can be turned by keeping off honour accepted niceties and let the economy boom. They all have to sail together for the common man. That is the great limit for a thriving nation.—INFA