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RBI board buys time as worries on autonomy linger

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Mumbai:The Reserve Bank of India’s board bought more time to review the government’s demand for a greater say in the central bank’s functioning, one of the issues that had fostered hostilities between the two sides.

“The board deliberated on the governance framework of the Reserve Bank and it was decided that the matter required further examination,” the central bank said in a statement after the meeting in Mumbai.

The status quo will for now reassure investors about the central bank’s autonomy, as the new Governor Shaktikanta Das was seen as someone more amenable to the government’s requests. Prime Minister Narendra Modi named Das to the post a day after Urjit Patel abruptly resigned as governor after clashing with the government over its demands to ease lending curbs on state-run banks and hand over more of the RBI’s capital to the state.

 

Yielding to the government’s demands may raise questions on the central bank’s autonomy and have a bearing on the credit rating of one of the world’s fastest-growing major economies.

The “meeting failed to shed any new light on Governor Das’s stance on banking regulation and other issues,” said Priyanka Kishore, head of India and South East Asia Economics at Oxford Economics, Singapore. “RBI is clearly trying to let matters cool before making any further decisions on these fronts.”

The 18-member board, which includes monetary policy makers, finance ministry representatives and industrialists, also reviewed matters relating to liquidity and credit delivery to the economy, besides discussing the current economic situation, global and domestic challenges, according to the statement.

Ahead of the meeting, Piyush Goyal, a top minister in Modi’s government, took to Twitter to accuse the central bank of wielding power without accountability and acting unilaterally in dealing with banks burdened by bad loans.

That prompted some to see this as a “frightening” peek into what’s in store for Das as he settles into the new role.

“It’s frightening because it’s very important to show respect for the process,” said Abhijit Banerjee, a professor of economics at Massachusetts Institute of Technology. “Das is going to worry he got chosen because he’s not the best person for the job but because he is someone who the government favored.”

“He will feel he doesn’t have independent authority,” Banerjee said.

Still, some see Das’s appointment as an end to hostilities that came to mark the relations between the RBI and the government in the Patel-era.

Swaminathan Gurumurthy, a Hindu nationalist and journalist appointed by the Modi government as an independent board member in August, backed the new governor’s conciliatory approach to the government. He was referring to Das’s first media briefing on Wednesday when the governor said the government deserves to be consulted.

“I don’t know if the relationship is good or not, but we have to have stakeholders consultation,” said Das, who was Modi’s key lieutenant when he unveiled his controversial plan to invalidate 86 percent of the currency notes in late 2016.. “The government is not just a stakeholder but also runs the country, economy and manages major policy decisions.”

The central bank has so far kept a tight leash on liquidity, restricted some weak banks from lending and refused to bailout the shadow banking sector. The latter had been at the forefront of new lending in the past three years, which in turn fueled domestic consumption and economic growth.

Modi is keen to keep growth going ahead of a national election early next year and as recent data showed the economy’s expansion may be under threat. Gross domestic product growth in the three months to September slowed to 7.1 percent from the 8.2 percent pace seen in the previous quarter.

The new governor has said supporting growth is very much part of the RBI’s mandate, a sharp contrast from his predecessor who stuck to the central bank’s inflation-targeting mandate. Das’s comments had stoked a rally in sovereign bonds, which extended gains for a third day Thursday on speculation the RBI will shift to a neutral policy stance from the current hawkish bias. They dropped Friday after crude prices regained some ground.

“With Das at the helm, we now think the RBI will call a halt to the tightening cycle,” Shilan Shah and Mark Williams, economists at Capital Economics, wrote in a note. “We no longer expect a rate increase at the next meeting in February.”


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Cabinet clears setting up of centralised GST appellate authority

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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.

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Urbanisation to be big driver of Indian economic growth: Kant

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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.

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India will surpass China, says Raghuram Rajan

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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.

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