October 31, 2017

Has the RBI destroyed the Indian Economy?

Finance minister Arun Jaitley portrayed the Rs 2,11,000 crore recapitalisation of public sector banks that he announced last week as the first essential step to reviving the economy. He is right: bank credit has stopped growing because all but a very few public sector banks are so mired in ‘stressed assets’ – or irrecoverable debt – that they have lost the capacity to lend. But even this gargantuan bailout will not revive the banking system, let alone the economy, if it is not accompanied by measures that will address the root causes of the ‘stress’.

Jaitley believes that the fault lies entirely with the bank managers, who have lent ‘excessively’ in a ‘non-transparent manner’, and then ‘hidden’ their actions ‘under the carpet’. What is non-transparent is the meaning he attaches to these words. Is he saying that the fault lies entirely with public sector bank managers, who have been corrupt, inefficient or both, and have then hidden their misdeeds ‘under the carpet’? The answer seems to be yes, because he has skilfully laced this with a justification of demonetisation. Both reforms, he has claimed, were necessary because ‘you cannot have an economy where the size of the shadow economy is much bigger than the apparent economy’. The cleaning out process that his government has bravely undertaken will revive growth in the long run all by itself.

Read more at https://thewire.in/192754/rbi-economic-crisis-inflation-targeting/

No comments:

Post a Comment