How the public debt affects us
Early last month,
I had described the Union government's Budget
as a public high-stakes gamble,
referring to the conscious decision to borrow
and
spend at all-time highs.
Our public debt has been mounting for years
and there was an extra
Rs three trillion of borrowing
between 2007 and 2009.
On top of the enormous fiscal deficit,
this year's budget plans
an additional Rs four trillion of market borrowing.
We are playing with fiscal fire in the hope of
succeeding in boosting growth to a higher level,
something the finance minister was candid in admitting.
Two more reminders
have come in recent days on the strain
these huge magnitudes are putting on the system.
On Friday,
there was a discussion at Hyderabad
which brought together the present governor of
the Reserve Bank of India
and
three of his predecessors.
And
D Subbarao,
the present chief,
said this huge borrowing programme
was blocking progress on the RBI's objective
of a lower interest rate regime.
The central bank,
he noted, had cut key policy rates six times
between
last October and this April towards this end,
but
'the borrowing programme has militated against it'.
As a corollary, said Subbarao,
an important reform needed
was more independence for the RBI,
to make monetary policy more of
a check on government fiscal decisions.
He was speaking against a backdrop:
on August 7,
several banks stayed away from a
Rs 12,000 crore auction
of government bonds (the auction fell through),
simply because
they had no room to buy.
The rules on the proportion of securities
a bank may hold till maturity are specified
as a maximum percentage of its deposits;
take in more and your balance sheet will have
to make provision for any market drop in their face value.
Banks said
they were at or close to this upper limit;
they can't take in more unless the rules are changed
— and those rules are supposed to ensure prudence.
And
this at barely the start of the fiscal year.
There is much hard work and skill required
to not topple off the fiscal precipice.
Apart from fiscal skills,
we need sustained work at a range of reforms,
to ensure the money spent is on
target and accountable.
Beside finance and industry and commerce,
we speak of sectors like
education, health, police, judiciary and all else, too.
To get the required sense and direction,
citizens need to be active as well.
Sriram Savarkar ©
Hinduism is more a way of life than a method of worship.
Dharmo Rakshati Rakshithaha
If you protect Dharma, Dharma will in turn protect you.
Hindus, If people slap you once, slap them twice!
Early last month,
I had described the Union government's Budget
as a public high-stakes gamble,
referring to the conscious decision to borrow
and
spend at all-time highs.
Our public debt has been mounting for years
and there was an extra
Rs three trillion of borrowing
between 2007 and 2009.
On top of the enormous fiscal deficit,
this year's budget plans
an additional Rs four trillion of market borrowing.
We are playing with fiscal fire in the hope of
succeeding in boosting growth to a higher level,
something the finance minister was candid in admitting.
Two more reminders
have come in recent days on the strain
these huge magnitudes are putting on the system.
On Friday,
there was a discussion at Hyderabad
which brought together the present governor of
the Reserve Bank of India
and
three of his predecessors.
And
D Subbarao,
the present chief,
said this huge borrowing programme
was blocking progress on the RBI's objective
of a lower interest rate regime.
The central bank,
he noted, had cut key policy rates six times
between
last October and this April towards this end,
but
'the borrowing programme has militated against it'.
As a corollary, said Subbarao,
an important reform needed
was more independence for the RBI,
to make monetary policy more of
a check on government fiscal decisions.
He was speaking against a backdrop:
on August 7,
several banks stayed away from a
Rs 12,000 crore auction
of government bonds (the auction fell through),
simply because
they had no room to buy.
The rules on the proportion of securities
a bank may hold till maturity are specified
as a maximum percentage of its deposits;
take in more and your balance sheet will have
to make provision for any market drop in their face value.
Banks said
they were at or close to this upper limit;
they can't take in more unless the rules are changed
— and those rules are supposed to ensure prudence.
And
this at barely the start of the fiscal year.
There is much hard work and skill required
to not topple off the fiscal precipice.
Apart from fiscal skills,
we need sustained work at a range of reforms,
to ensure the money spent is on
target and accountable.
Beside finance and industry and commerce,
we speak of sectors like
education, health, police, judiciary and all else, too.
To get the required sense and direction,
citizens need to be active as well.
Sriram Savarkar ©
Hinduism is more a way of life than a method of worship.
Dharmo Rakshati Rakshithaha
If you protect Dharma, Dharma will in turn protect you.
Hindus, If people slap you once, slap them twice!
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Forum : www.MumbaiHangout.net
Our Friends Network: http://social.mumbaihangout.org/home.php
------------------
DISCLAIMER :
------------------
This message serves informational purposes only and should not be viewed as an irrevocable indenture between anyone. If you have erroneously received this message, please delete it immediately and notify the sender at MumbaiHangOut-Owner@yahoogroups.com. The recipient acknowledges that any views expressed in this message are those of the Individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of The M.H.O. Group. M.H.O. reserves the right to repeal, change, amend, modify, add, or withdraw the contents herein without notice or obligation.
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