‘Interest rate is the best tool for Reserve Bank to control inflation’-Hindu Business Line
Reserve Bank of India Governor Raghuram Rajan exuded confidence that retail inflation would come down to 6 per cent by March, 2016
A fortnight ahead of the next bi-monthly monetary policy review, Reserve Bank of India Governor Raghuram Rajan, on Thursday, said the ‘best tool’ available with the central bank to control price rise was interest rate.
“Our best tool to control inflation is interest rate,” he said, adding that the government too had tools such as increasing agricultural production and improving supply.
Seasonal effects
“Both need to work together and will work together. We were expecting some increase in the CPI number because of the seasonal effects from vegetable prices, but it came more than anticipated by the consensus forecast. We will study them in greater detail. What does it suggest is that inflation is high as far as food prices go,” he added.
“Both need to work together and will work together. We were expecting some increase in the CPI number because of the seasonal effects from vegetable prices, but it came more than anticipated by the consensus forecast. We will study them in greater detail. What does it suggest is that inflation is high as far as food prices go,” he added.
Dr. Rajan was talking to reporters after the RBI’s board meeting here.
However, he said the core inflation had been coming down but though ‘very very gently’. Retail or consumer price index (CPI) inflation rose to a three-month high of 8.59 per cent in April.
Dr. Rajan further said the RBI was a technocratic organisation and worked with the government.
“We do not use the rupee as the way of managing inflation. We are not trying to rely on a particular level of rupee to help us on the inflation front,” he said.
He said sometimes it can prove dangerous if ‘you become overly reliant’ on certain level of rupee.
Instead what RBI has focused on is creating conditions inside the country for reduction in inflation.
“Thus far we feel comfortable with the pace of progress. Of course, there are blips up and down...,” the Governor added.
He said people of India wanted lower inflation and “we will do whatever we can on the inflationary front.’’
Dr. Rajan exuded confidence that retail inflation would come down to 6 per cent by March, 2016. “We are very comfortable with the fact that we can achieve what the Urjit Patel committee suggestion of 8 per cent inflation at the end of the rear and 6 per cent at the end of next year.”
On the challenges before the new government, Dr. Rajan said slowing growth, high inflation and twin deficits would have to be tackled on a priority basis.
After slipping to a decade low of 4.5 per cent in 2012-13, the growth inched up to 4.9 per cent in 2013-14. In the current year, the growth is estimated to rise to 5 per cent.
The WPI inflation has eased to 5.2 per cent, while the retail inflation is still high at 8.59 per cent in April.
Replying to questions on black-money, Dr. Rajan said the RBI was not directly involved in curbing the menace, and it was primarily a function of the government.
“...we can detect some of these activities as a result of monitoring of foreign exchange transactions. We do certainly work with the government. But in terms of bringing back black—money that is really primarily a function of government,” he added.
Banks are dealing with money deposited by public. Banks are custodian of public deposit. They have got no moral right to lend only to achieve the target set by the management. Government cannot justify its action in courts when it promotes waiver of loans or compromise with recalcitrant and willful defaulters. Non performing assets in all banks have been rising year after year and banks cannot guarantee the correctness of their published balance sheets.
My Comment :
I am of the strong view that Uniform Interest Rate Regime for public sector banks will prove more helpful .
Banks cannot justify lending without earning profit or offer whimsical discounts endangering the overall health and overall future of banks. At the same time banks cannot charge discriminatory rate of interest for different home loan borrowers, say old and new.
If all government funds are taken out from banks or at least become eligible for payment of interest by banks, I think most of the banks will face unimaginable loss or at least erosion in their profit. Even in such pathetic condition and poor health of banks, some of CMDs of banks are advocating for lowering of interest rate just to please a few ministers and shying away from accepting uniform interest rate.
Lowering of interest rate by weak banks just to meet the challenge posed by strong banks will tell upon the health of such weak banks and ultimately jeopardize the deposits made by common men.
After all who has given banks right to play with public deposits as per whims and fancies of ministers and Government of India. If private banks instigate rate war it is imaginable, but the painful truth is that it is PSBs which are lowering rates without taking care of cost of fund and possibility of erosion in their profitability.
In olden days private merchants were accused of labour exploitation. In the modern era banks are earning profit by reducing manpower and exploiting existing manpower. Anyway, if even weak bank collapses due to wrongful policies prevailing in the market or promoted by government, it is none other than depositors who will suffer the most. As such it is the interest of banking community as a whole that interest rate is made uniform and the focus of bankers is made to concentrate on more and more lending. It is to be kept in mind that a person who is ready to avail loan of Rs.20.00 lac or more is least bothered of one or two percent higher interest charged to him.
Sunday, March 30, 2014
Uniform Interest Rate Regime
Government will have to impose higher tax rate on Super Rich class of people who have accumulated huge wealth by exploiting poor and middle class families of the country.
Government will have to increase investment in productive projects and decrease spending on consumption. GOI will have to increase investment to increase real employment opportunities and stop voter friendly policies like MANREGA or Food for Scheme or Mid day meal or distributing gifts to voters on the eve of election.
Government will have to stop focusing on low interest regime which helps only Corporate sector and that to undesirable extent. Due to low interest rate, poor and middle class families do not want to keep their idle money in banks but prefer investing in Gold. Due to poor rate of interest available on deposits made in banks , rate of growth in house hold savings comes down and investment capacity of the government and the bank to invest in productive projects or lend for manufacturing or farm sector is adversely affected .
NOT only this, tendency of poor and middle class as also that of rich and super rich class to invest more in gold unnecessarily inflates demand of Gold and also give rise to unwarranted rise in import of gold. More and more investment in Gold not only affects bank's deposit base but also causes deficit trade balance and inflates current account deficit of the country.
Further rise in prices of land is caused by enhanced investment in land by common men as also by rich men instead of keeping money in banks. This give rise to rise in price of land, houses and ready made flats which again affects the purchasing capacity of common men. To add fuel to fire, Government has given all tax concessions to real estate builders to boost up demand of houses and thus helped builders to increase the prices of flats to undesirable and unreasonably higher extent.
As such it is necessary for GOI to revisit the policy of reformation, withdraw stimulus packages allowed in the name of global recession in the year 2008 and 2009 and make all economic policies friendly to common men and at the same time giving all encouragement to those who are real businessmen, who believes in regulated and reasonable price and who do not exploit common men only because they enjoy monopoly of business.
GOI will have to force super rich to contribute more and more for poor and common men and to contribute in social welfare scheme. At the same time politicians will have to stop exploiting corporate , rich and super rich class in the name of election and at the same time gear up administrative machinery to clear the pending projects in shortest time frame.
GOI will have to force super rich to contribute more and more for poor and common men and to contribute in social welfare scheme. At the same time politicians will have to stop exploiting corporate , rich and super rich class in the name of election and at the same time gear up administrative machinery to clear the pending projects in shortest time frame.
GOI will have to adopt Uniform Interest Rate regime as was prevalent before launch of reformation era in the year 1991.Unwarranted competition in interest rate structures among 28 nationalized banks which are daughters of the same government must be stopped in the interest of the bank and the country as a whole.
Transfer of business from one bank to other results in profit to one strong bank and loss to some other weak bank . After all they all banks are organs of the country and they should be dictated and governed by same set of policies.
Unwarranted war on interest rate among government banks results in loss of some banks and profit to other banks and ultimately affects the income of investors and depositors of some bank or the other. Focus of bank is centered on earning profit by competing in interest rate and not on increasing quality of their asset base and quality of their service standards which are prime requirement for the growth of the country.
Transfer of business from one bank to other results in profit to one strong bank and loss to some other weak bank . After all they all banks are organs of the country and they should be dictated and governed by same set of policies.
Unwarranted war on interest rate among government banks results in loss of some banks and profit to other banks and ultimately affects the income of investors and depositors of some bank or the other. Focus of bank is centered on earning profit by competing in interest rate and not on increasing quality of their asset base and quality of their service standards which are prime requirement for the growth of the country.
Tax the super-rich at a higher rate: C Rangarajan, PMEAC chairman
NEW DELHI: C Rangarajan, a key economic advisor to Prime Minister Manmohan Singh, has said the government could consider imposing a marginal taxrate higher than the current 30% on those with "substantially higher income", becoming the first Indian policymaker to contemplate higher taxes after the US raised taxes on the wealthy for the first time in two decades.
"We must debate unconventional ideas. Fiscal deficitcannot be contained by curbing expenditure alone; we must raise revenue as well. We have to think of not just administering existing taxes better, but also of new ones. Why can't we think of having a rate of tax higher than the current peak of 30% on substantially higher incomes?" Rangarajan told ET in an interview.
The veteran economist, a former RBI governor, also called for rethinking the current policy under which dividends were tax-free in the hands of investors, though companies pay a dividend distribution tax of 16%. In the conversation with this paper, Rangarajan questioned the logic of taxing dividends at a rate lower than the top marginal tax rate.
But these leaps of taxing innovation, he cautioned, will have to wait till sentiment has revived and the economyhas resumed its growth momentum. "I am not saying that we should rush in as sentiment is just now picking up, and we should not create a situation where what we have gained is lost. But at the same time, we need to look at the various possibilities of raising revenues," he said.
India taxes income at three rates - 10%, 20% and 30% - though the actual top rate is higher, at around 33%, due to various surcharges. These rates were fixed in 1997 by Finance Minister P Chidambaram, who held the portfolio at the time.
At a lecture to honour Raja Chelliah, a function presided over by Rangarajan, Chidambaram called for a debate on inheritance tax.
Earlier this week, the US Congress voted for raising taxes on rich Americans, as part of the resolution of the crisis over the so-called fiscal cliff. The US legislation raises taxes on individuals earning more than $400,000 per year, and on couples earning more than $450,000.
NEW DELHI: C Rangarajan, a key economic advisor to Prime Minister Manmohan Singh, has said the government could consider imposing a marginal taxrate higher than the current 30% on those with "substantially higher income", becoming the first Indian policymaker to contemplate higher taxes after the US raised taxes on the wealthy for the first time in two decades.
"We must debate unconventional ideas. Fiscal deficitcannot be contained by curbing expenditure alone; we must raise revenue as well. We have to think of not just administering existing taxes better, but also of new ones. Why can't we think of having a rate of tax higher than the current peak of 30% on substantially higher incomes?" Rangarajan told ET in an interview.
The veteran economist, a former RBI governor, also called for rethinking the current policy under which dividends were tax-free in the hands of investors, though companies pay a dividend distribution tax of 16%. In the conversation with this paper, Rangarajan questioned the logic of taxing dividends at a rate lower than the top marginal tax rate.
But these leaps of taxing innovation, he cautioned, will have to wait till sentiment has revived and the economyhas resumed its growth momentum. "I am not saying that we should rush in as sentiment is just now picking up, and we should not create a situation where what we have gained is lost. But at the same time, we need to look at the various possibilities of raising revenues," he said.
India taxes income at three rates - 10%, 20% and 30% - though the actual top rate is higher, at around 33%, due to various surcharges. These rates were fixed in 1997 by Finance Minister P Chidambaram, who held the portfolio at the time.
At a lecture to honour Raja Chelliah, a function presided over by Rangarajan, Chidambaram called for a debate on inheritance tax.
Earlier this week, the US Congress voted for raising taxes on rich Americans, as part of the resolution of the crisis over the so-called fiscal cliff. The US legislation raises taxes on individuals earning more than $400,000 per year, and on couples earning more than $450,000.
"We must debate unconventional ideas. Fiscal deficitcannot be contained by curbing expenditure alone; we must raise revenue as well. We have to think of not just administering existing taxes better, but also of new ones. Why can't we think of having a rate of tax higher than the current peak of 30% on substantially higher incomes?" Rangarajan told ET in an interview.
The veteran economist, a former RBI governor, also called for rethinking the current policy under which dividends were tax-free in the hands of investors, though companies pay a dividend distribution tax of 16%. In the conversation with this paper, Rangarajan questioned the logic of taxing dividends at a rate lower than the top marginal tax rate.
But these leaps of taxing innovation, he cautioned, will have to wait till sentiment has revived and the economyhas resumed its growth momentum. "I am not saying that we should rush in as sentiment is just now picking up, and we should not create a situation where what we have gained is lost. But at the same time, we need to look at the various possibilities of raising revenues," he said.
India taxes income at three rates - 10%, 20% and 30% - though the actual top rate is higher, at around 33%, due to various surcharges. These rates were fixed in 1997 by Finance Minister P Chidambaram, who held the portfolio at the time.
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At a lecture to honour Raja Chelliah, a function presided over by Rangarajan, Chidambaram called for a debate on inheritance tax.
Earlier this week, the US Congress voted for raising taxes on rich Americans, as part of the resolution of the crisis over the so-called fiscal cliff. The US legislation raises taxes on individuals earning more than $400,000 per year, and on couples earning more than $450,000.
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