Government interference in RBI functioning could be disastrous

By Lokesh Mahajan

RBI has kept the REPO & CRR rates unchanged in Monetary policy announced on 4th aug,15. Salute to Governor Rajan for not yielding to the pressure of govt and big corporate houses for pruning down the interest rates. But now govt. is bent upon curtailing the powers of RBI Governor by constituting a committee to take the final call on monetary policy. This move if approved shall prove to be disastrous for the country, as vested interests will score over the interest of the country. Let us examine the current economy status.

No doubt CPI has fallen, and as per linear approach RBI need to cut rates, but despite this RBI has taken a tough stand by keeping the status quo on prevailing REPO & CRR rates,based on deficit in expected Rains, current ground reality of skyrocketing vegetable prices, and low credit off-takes by industry despite reducing Repo rates twice in the past.RBI has its valid apprehensions as soft pedaling may result in fresh NPA's after couple of years, which are already touching hooping over 5 lac crores. The banks had extended huge loans to corporates, whereas they have always denied lending to genuine small investors.

Has govt. ever questioned the PSU banks who had gone soft on corporate Giants like King Fisher, JP Associates, Unitech, Bhushan Steel,where the retail equity stake holders money has been wiped out completely. These so called corporates zoomed their market caps with the help of PSU banks, who were liberal in lending money without going in for a serious due diligence of their projects. 

RBI has made a thorough study of the current situation , where they have identified weakening global demand as one of the main reasons for slowdown in industrial outputs and not the interest rates. This imbroglio has resulted in cascading effect comprising of poor credit growth.,unemployment levels going up,muted private investment,adverse balance of payment,poor Rupee performance vis-a vis Dollar, slowing down FDI investments.Recapitalisation of PSU Banks has come as a shot in their arm ,but this small infusion of capital will fail to solve the perennial problem of mounting NPA's , so the need of the hour is to break the nexus between some unscrupulous Bankers and Corporate houses. 

The interest rates will definitely come down once long pending GST bill is passed, and government. takes a tough stand in curtailing the subsidies and limiting its disbursement only for deserving poor class of our country.