No repeat of ’91

PM: It’s high time RBI revisited issues of monetary policy

Need for fresh thinking on macro-economic policy

• Allays apprehensions of meltdown
• No rethink on globalization process
• Forex reserves can last 6-7 months
• Need to curb investments in unproductive assets

Venkat Parsa

New Delhi: Allaying fears of meltdown, Prime Minister Manmohan Singh on Saturday ruled out reversing the globalization process. The Prime Minister also declared that there is no question of a throwback to the economic crisis of 1991. At that time, when he had taken over as Union Finance Minister in P V Narasimha Rao Government, the foreign exchange reserves were enough to last for 15 days. Now it can last six to seven months and as such there is no comparison, he said.

Interacting with media persons after release of the fourth volume, History of RBI – Looking Back and Looking Ahead, at a small function at his 7, Race Course Road residence in the Capital, Prime Minister Manmohan Singh said, “There is no question of going back to1991 balance of payment (BoP) crisis. At that time foreign exchange in India was a fixed rate. Now it is linked to market. We only correct the volatility of the rupee. In 1991, the country had only foreign exchange reserves for 15 days. Now we have reserves of six to seven months. So there is no comparison. And no question of going back to 1991 crisis.”

When asked that the Current Account Deficit (CAD) was still high, he acknowledged the problem, saying high imports of gold was one of the major factors contributing to it. High gold imports pushed CAD to a record high of 4.8 per cent of the GDP ($88.2 billion) in 2012-13 when India imported 845 tonnes of the yellow metal. Import of gold in April-July 2013-14 it rose 87 per cent to 383 tonnes.

“We seem to be investing a lot in unproductive assets,” he said. In order to curb import of gold and contain CAD at $70 billion, the Government raised Customs Duty on precious metals like gold, silver and platinum to 10 per cent. The RBI imposed restrictions on import of gold coins, medallions and dorebars, saying importers would require licence from Directorate-General of Foreign Trade (DGFT).

Earlier at the book-release, the Prime Minister said, “When I became the RBI Governor, I had no great knowledge of what monetary policy is about and therefore, I asked the late Prof Chakravarty to head a committee to look at the functioning, the goals, the means and measures of monetary policy and that report was pretty influential for a period of time. And I would venture to think that the time has come, when we should revisit some of those areas – the possibilities and limitations of monetary policy in a globalized economy, in a fiscally constrained economy – I think that is one subject. But macro-economic policy-making, targets and instruments, I think, is another area, where I feel fresh thinking is called for and I sincerely hope that the Governors of the future, particularly Dr Raghuram Rajan, will attempt to revisit some of these difficult areas.”

The Prime Minister said that the history of the Reserve Bank is the history of the growth of the country since Independence. The Reserve Bank has done the country proud – the role which it has played in shaping the monetary policy, in shaping the credit policy and in influencing the supply of credit to rural areas.

The RBI, he said, has served the country with great distinction. But he ventured to say that the best is yet to come. He went said,“I wish Dr D Subba Rao the best. He has served the Reserve Bank and our country with great devotion. And I extend a hearty welcome to his successor, Dr Raghuram Rajan. In him, we have a very distinguished economist of international fame. I sincerely hope that the Reserve Bank of India will see a more glorious period under his Governorship.”