New Delhi: Ahead of next week’s crucial board meeting of RBI, the central bank’s independent director and RSS ideologue S Gurumurthy made a case for calibration of its massive Rs 9.6 lakh crore reserves, saying no central bank in the world maintains such high levels of surplus.
Gurumurthy, who was appointed to the board of RBI a few months back, said the capital adequacy ratio prescribed in India is 1 per cent higher than the global Basel norms. He also pitched for easing lending norms for small and medium enterprises, which account for 50 per cent of the country’s GDP.
In his first public comments since the spat between the RBI and the Finance Ministry over a range of issues came out in the open, Gurumurthy said the stand-off “is not a happy thing at all”.
The RBI’s board meeting is scheduled to take place on Monday where the issues raised by the government, including easing of PCA norms, cutting size of reserves and enhancing credit to MSMEs, are likely to come up for discussion.
Praising the shock demonetisation of old Rs 500 and Rs 1,000 notes in November 2016, he said the Indian economy would have collapsed under the weight of high denomination currency notes which had risen to Rs 4.8 lakh crore in just 18 months and was being funnelled to real estate and gold. On the issue of capital framework for RBI, he said two different studies have put the adequate size of reserve that the central bank must maintain to guard against default risk at 12 per cent and 18.76 per cent. However, the RBI currently has reserve of 27-28 per cent, which may have further gone up due to the recent depreciation in the value of rupee.
“The appreciation in the value of the dollar is the reserve of the Reserve Bank. You bought dollar at 42-45, and it is now 70. Just like when you buy some shares and the share values go up, and you take the appreciation as your reserve, this is the reserve.
“You cannot say, come on it has appreciated so much, give me that money. I don’t think the government is asking for that. As my understanding goes, the government is only asking for a formulation of a policy as to how much reserve the central bank must have. Most central banks don’t have reserves of this kind at all, only RBI has these kinds of reserves,” he said.
Gurumurthy was delivering a lecture on ‘State of the Economy: India and the World’ at the Vivekananda International Foundation (VIF) here.
Stating that the stand-off between the RBI and government “is not a happy thing at all”, he indicated that differences could be a result of considering only the American system as the perfect ecosystem.
“But I think an alternative is necessary and exists also. That is part of an overall correction of the Indian mind,” he said.
On easing of Prompt Corrective Action (PCA) framework, he said there has been certain revisions of norms recently.
“If capital adequacy is the only ground, then much of this problem won’t be there. But there is capital adequacy-plus grounds on which this issue is there. That is the matter of dispute between the government and RBI,” he said.
The PCA framework kicks in when banks breach any of the three key regulatory trigger points — namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).
Of the 21 state-owned banks, 11 are under the PCA framework. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra. With regard to Basel III norms on capital adequacy, he said the BIS prescribes these for only internationally active banks.
“But banks which are not internationally active, need not conform to what (they) say. The universal banks need not conform to what (they) say. We don’t have any commercial banks. We have only universal banks because our banks do term lending. But still the same Basel norms are imposed,” he said. In India, for both internationally active and domestic banks it is 9 per cent, he said.
“We are doing more than what Basel wants and so the banks have less money to lend. These are all the things on which there is no discourse in India,” he noted. There are only four internationally active banks in India, he said, adding all others are domestic lenders. “They need not have 8 per cent capital. They are forced into having 9 per cent capital. Because some people think the IMF feels happy if we have 9 per cent capital,” he said.
Cabinet clears setting up of centralised GST appellate authority
New Delhi: The Union Cabinet on Wednesday approved setting up of a centralised Appellate Authority for Advance Ruling (AAAR) under the goods and services tax that would decide on cases where there are divergent orders at the state level.
The setting up of a centralised AAAR would require amendments to the GST Acts. The centralised authority as an appellate body will only take up cases wherein the Authority for Advance Ruling (AAR) of two states have passed divergent orders.
The Goods and Services Tax (GST) Council, headed by Finance Minister Arun Jaitley, and comprising state counterparts, in December decided to establish the centralised AAAR.
“The Cabinet has cleared the GST appellate authority,” a source said after the meeting of the Cabinet headed by Prime Minister Narendra Modi.
In view of the confusion created by contradictory rulings given by different AARs on the same or similar issues, the industry had been demanding a centralised appellate authority that could reconcile the contradictory verdicts of different AARs.
Urbanisation to be big driver of Indian economic growth: Kant
Davos: Urbanisation will be a big driver of economic growth in India going forward, supported by favourable macroeconomic factors, accelerated infrastructure building and continuing reforms, NITI Aayog CEO Amitabh Kant said.
Speaking here at an event on sidelines of the World Economic Forum Annual Meeting, he also said the Indian economy may even exceed the IMF growth forecast of 7.5 per cent for the country.
Kant said IMF has forecast 7.5 per cent growth for India despite a gloomy outlook for the global economy and this itself is good, though there are expectations that this estimate would be surpassed. He said India is giving a big push to urbanisation with more than 100 smart cities being developed.
The country is also using technology in a big way to change the way business and governance is done, he added. Besides a massive infrastructure building is happening, bank credit flow has rebounded and macroeconomic factors like inflation and fiscal deficit are also being supportive, Kant said.
DIPP Secretary Ramesh Abhishek noted that states are competing with each other to attract investments and all political parties have adopted the economic reform process. He listed various reform initiatives undertaken in India, including on areas like ease of doing business, FDI, manufacturing and taxation.
They were speaking at Institutional investors’ breakfast roundtable, organised by the industry chamber CII and Kotak Mahindra Bank. Other participants included CII Director General Chandrajit Banerjee and leaders from Indian and foreign companies.
On questions about some persisting issues in doing business including on tax and insolvency related issues, Abhishek said a lot of efforts have been put in to remove all bottlenecks and starting a business doesn’t take more than a day. Besides, special provisions have been made for startups and angel investors, he added.
Kant said efforts are also being made to remove all physical intervention and digitise the entire process of inter-ministerial and inter-department consultations to fast-track the decisions.
India will surpass China, says Raghuram Rajan
Davos: India will eventually surpass China in economic size and will be in a better position to create the infrastructure being promised by the Chinese side in South Asian countries, former RBI Governor Raghuram Rajan said.
Addressing a session on Strategic Outlook for South Asia, Dr Rajan said that the Indian economy would continue to grow while growth rate is slowing down in China.
“Historically, India had a bigger role in the region but China has now grown much bigger than India and has presented itself as a counter-balance to India in the region,” Dr Rajan said at the WEF Annual Meeting 2019.
“India will become bigger than China eventually as China would slow down and India would continue to grow. So India will be in a better position to create the infrastructure in the region which China is promising today. But this competition is good for the region and it will benefit for sure,” he said.
The comments assume significance with China working on a lot of infrastructure projects across the region. In 2017, India became the sixth largest economy with a GDP of $2.59 trillion while China was the second large with a GDP of $12.23 trillion.
At the same session, Nepal PM K.P. Sharma Oli cited collaboration with China as well as India as reasons for the economic growth.