India rises to 77th in ease of doing business jumping 23 paces in World Bank ranking. Good news. Rupee touching 74 to a dollar. Stock market moving up and down. These are matter 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.
The last year India was at 100th and142nd in 2014 in WB ranking. This jumping is a shot in the arm of the Modi government ahead of the impending elections. The WB says that India has done well in six of the ten parameters like construction permits, getting electricity, getting credit, paying taxes, trade across borders, enforcing contracts and resolving insolvency.
Both the biz and the government committed a fundamental mistake. Both took to mean that public sector banks were “government properties” and “public fund is nobody’s money”. So squandering it away became a national pastime.
It means a lot. It means more people around the world may be willing to come to India either to set a shop or transact with Indian business or government organisations. Simply put it means somewhere the government has stopped nagging and unnecessary interference.
It should augur well.
But there are hitches. The inflation though in a band is not stable. The prices are varying at domestic level. At international arena it is in a bumpy region. As rupee decelerates, the export and import prices vary every day. This impacts the domestic market, pricing and makes export prices volatile.
The glaring impact is seen in petroleum prices. Almost 80 percent of crude is imported. About 20 percent is prospected within the country at half the cost. But when it comes to pricing, it is based on the day’s international price. Many question its prudence.
The worse it impacts stock market. It remains a factor in inviting investment. A choppy market creates a wary situation. So despite the government wanting, even with favourable WB certificates, everything is not hunky dory.
Is the government at fault? Normally it is not. The businesses despite several ease of norms are dependent on various government steps despite the government stance of neutrality.
The government still finds itself doing lot of hand holding. The Indian businesses are also at fault. Since Independence, almost for the last 70 years, the businesses themselves could not develop the confidence to be on their own. If sometimes they do well, they resent the government asking even a simple question. But if they are in slight difficulty, they rush to the government for succour.
The bureaucracy also feels that if there is not a problem, they would be redundant. So sometimes problems are injected. But that businesses cannot do without government is testified by the Donald Trump administration in the US. Howsoever the biz houses want, the government and businesses cannot chart fully separate courses. They have to be in each other’s benevolent neighbourhood.
That means the government cannot be done away with. This has to be appreciated by both but all the same keep 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 “incentivise” them. The government did not act in a prudent manner and fell into the biz houses’ trap.
No biz house today says why they took such huge loans, which mostly they did neither need nor they did repay. So the NPA is their doing and of course the government has to take the blame because its interference in banks was not needed at that time.
Both the biz and the government committed a fundamental mistake. Both took to mean that public sector banks were “government properties” and “public fund is nobody’s money”. So squandering it away became a national pastime.
Everybody forgot that it is common man’s 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 partially helped the poor.
Now as the government and businesses scoop bank funds, it shakes the 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. 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. The RBI thus has to be a tough regulator.
Despite that even in the past though the 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 be. 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 nation certainly has learnt a lot. The poor man has suffered. The 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.