My View on "Fiscal correction not to be trifled with - Dr.S.S....":
How fast the finance minister Arun Jaitley and RBI Governor Dr Raghuram Rajan imbibe the content of four small paragraphs under the sub-heading ‘Inter-generational equity’ will decide the time that will be needed for India Growth Story to fall back on track. This portion of the article (highlighting the words like ‘inter-generational burden of excessive government borrowing’, ‘internal debt explosion’, ‘consolidated sinking fund (CSF)’, ‘sale of family silver’ and ‘created money’) should be widely circulated among policy makers and the beneficiaries of the opening up of the economy, who, so far, belong to the higher strata of Indian society. CSF is an idea which should be pursued vigorously. Actually, cooperatives in states like Kerala had factored in this idea in their debenture(long term borrowing) programmes.
The recent tendency on the part of government to suck out created profits/surpluses from balance sheets of statutory bodies and PSUs (including banks) will soon affect the health of the financial sector. The suggestion that transfer of surplus ‘income’ by RBI to GOI should be allocated to the CSF should be seen in this perspective. Last year, I had concluded an article in The Global ANALYST with the following observations:
“To ensure that temptations of government emanating from external compulsions do not dilute the strength of RBI’s balance sheet, GOI should take measures to augment the share capital and reserves of RBI after carrying out appropriate amendments to RBI Act. Till such time RBI should be allowed to retain surplus income by transfer to reserves. Considering the size of its balance sheet and the internal and external pressures on its income generating capabilities, as also the nature of shocks the Bank has to absorb from time to time, the central bank’s reserves need to be augmented on an ongoing basis.”
- M G Warrier, Mumbai
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