Inflation remains primary concern for Reserve Bank: Subir Gokarn (the Hindu )
A roadmap for fiscal consolidation and a significant tax reform are needed
Days ahead of the mid-quarter review of the monetary policy, on December 18, Reserve Bank of India (RBI) Deputy Governor Subir Gokarn on Saturday said inflation continued to be the primary concern for the central bank.
His comments come amid growth in the second quarter (July-September) falling to 5.3 per cent, triggering demands for a rate cut by the RBI to boost the economy.
The RBI should not do anything that provide some short-term stimulus to growth, he said at a Bombay Management Association event.
“One action is not necessarily going to make the difference. But there are risks associated as well,” Mr. Gokarn said, adding inflation continued to be the primary concern of the monetary policy.
According to many analysts, the central bank will hold the rates on December 18 as inflation continues to be high, at 7.45 per cent in October.
At the last policy announcement, the RBI had left the short-term lending rates unchanged at 8 per cent.
Mr. Gokarn said the RBI should not fall prey to trying out something opposite if one set of actions, in this case the anti-inflationary stance, was not working.
“The belief that just because something does not seem to be working, the exact opposite is the solution (is incorrect),” he said.
On Thursday, the RBI Governor, D. Subbarao, had hinted that rate cuts were on the anvil as growth had moderated steeply.
“We are expecting that inflation will trend down starting Q4. As we go into our mid-quarter policy on December 18 and the quarterly policy on January 29, we will take into account the growth-inflation trajectory and calibrate our monetary policy accordingly,” the Governor had said.
Above comfort level
However, Dr. Subbarao also said at 7.5 per cent, inflation was still high, though it had come down from its peak.
To tame inflation, the Reserve Bank since March 2010, has announced 13 consecutive rate hikes. However, inflation is still above the RBI’s 5 per cent comfort levels.
Mr. Gokarn said a commitment to walking on a fiscal consolidation roadmap and introducing tax reforms such as Goods and Services Tax (GST) would help the country avoid a downgrade by global rating agencies.
“A roadmap for fiscal consolidation, a significant tax reform (GST) are what we need in terms of giving some comfort on where the fiscal situation is headed, as it creates some resources available for government investments.
“And certainly, if this roadmap is adhered to, then I think the rating downgrade risk is sort of automatically dealt with.”
Noting the positive impact on state finances when VAT was introduced, he said GST would have a similar impact.
“The VAT had tremendously helped the states in reducing their fiscal deficits, and the same kind of dividend is possible with GST as well,” he said, without elaborating further.
Fiscal deficit
On the fiscal deficit, the RBI Deputy Governor underlined the need to invest in capital formation.
Mr. Gokarn said during high growth period of 2004-07, there was a lot of focus on capital formation and the work done on building highways is so far helping the economy.
Talking of the volatile rupee, he said the currency was fanning inflation but also conceded that it was very difficult to protect rates given the relatively small forex reserves and the high current account deficit.
Consolidation needed in banking sector: Central Bank CMD
VISAKHAPATNAM, DEC 8:
Consolidation is needed in the Indian banking sector and therefore mergers and acquisitions should take place, but it is not happening for various reasons, according to Mohan V. Tanksale, Chairman and Managing Director of Central Bank of India.
He was addressing the media here on Friday evening. Earlier in the day, he had inaugurated an ultra small branch at Kandarada village near Pithapuram in East Godavari district. He said Indian banks were nowhere in the global list of big banks and therefore it was preferrable that mergers should take place to achieve size and compete in the global market. “Our Finance Minister has expressed the wish that consolidation should take place in the banking sector, but it is not happening. When two banks come together, there should be compatibility in organisational cultures and there should be technological convergence — objectives which are difficult to achieve, but by no means impossible,” he said.
He said his bank would strive to take banking services to the rural areas and achieve financial inclusion. “Our bank has been allotted 3,750 villages in the country and we will open ultra small branches by appointing business correspondents. Zero balance accounts will be opened and each household will be covered in the village. Each such branch will be attached to a bigger branch in the vicinity and the manager of the bigger branch would visit the ultra small branch once a week and monitor its functioning.”
Referring to the banking scenario in the country, he said there may be some improvement in the next quarter and the inflation position may ease accompanied by a rate cut. “We have already reduced interest rates to an extent. The situation may improve. On the whole, the Indian banking sector has shown great resilience on many occasions in the recent past. There may be ups and downs, but we have survived them all,” he said.
He said public sector banks in the country were performing well and they were able to hold their own against the private sector banks. “In the key areas of technology adaptation and customer service, the public sector banks are competing well with the private ones. In any event, in a vast country like India, there is room for both,” he said.
Referring to Andhra Pradesh, Tanksale said the bank was in expansion mode in the State and it would add 26 more branches to the existing 174 to make it 200 by the end of the current financial year
At 3 crore rural accounts, banks set global record
The banking sector has opened over three crore accounts in rural India as part of their financial inclusion drive. Compared to the number of rural households in the country of over 22 crore this is about 13 per cent.
The government data upto March 31, 2012 also shows the extent to which the banking sector has to stretch to make the Aadhaar programme a success.
The Aadhaar roll out of cash transfer will mean government benefits will accrue to the poor directly in their bank accounts, instead of being mediated through the leaky district administrations.
In 51 districts the centre plans to start the Aadhaar based transfer begin from January 1, but keeping these banking numbers in perspective, urban and semi-urban areas have got preponderance in the first list.
The data also shows the government has been fairly successful in making the roll out of the rural bank accounts spread out across the country. The 3.16 crore bank accounts are however a record of sorts globally for the number of rural people who have been tapped.
The Aadhaar scheme as originally envisaged had planned to staple a bank account with the number. Every person who got an account was supposed to automatically get a bank account too, but the Reserve Bank of India has opposed this move.
It has said this would lead to drop in the due diligence that is required before opening an account. Instead it has asked the banks to be more liberal wherein they can use an Aadhaar card as the identification basis for opening an account.
As per the finance ministry data the maximum number of financial inclusion accounts have been opened in Uttar Pradesh, followed by West Bengal. As the chart shows Andhra Pradesh and Bihar follow them in that order.
The data pertains to the public sector banks but the private sector too has got interested in these accounts.
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