By Syed Zahid Ahmad,
It is better to see Dr. C. Rangarajan resigning as chief of Prime Minister’s Economic Advisory Council (EAC). He might be eying a bright career as consultant for new growing business of financial inclusion. This way he might have escaped from facing the utter failure of UPA government on economic front.
Rangarajan in his tenure might have delivered a lot of advice to the government but for the last 24 months his suggestions were not resulting positively. RBI with increasing CRR and Repo rate since July 2006 is helping inflation to grow more in the name of taming inflation. These experts from financial sector hardly evaluate multi-tier effects of interest in our economic process. We sincerely need economists who could well design policies for growth of financial sector as well as other segments of the society with prices under control. This is all we meant for real foster inclusive growth – the slogan of our 11th Five Year Plan. Since Rangarajan was not going according to the plan, he should have better resigned earlier.
I don’t know what is happening. Our Finance Minister might be bit confused. At one side he says supplies will be increased, on the other he supports tight monetary policy by RBI which means for costlier credit supply. The Finance Minister may be asked about how he expects that costly credits are going to help us increase the supply and reduce the prices. The new produces with costlier credits will certainly add value of credit costs to cost of output. With costly credit fewer will opt to have credit to extend supply capacity. So let our finance minister and RBI explain how costly credit is going to increase the supply or minimize the cost and price of GDP.
What should have been done, in fact, is to frame a planned policy to allocate FDI to desired segments. FDI has actually increased liquidity in some selected segments which is causing problems for us. So instead of making the credit costly, the regulators should make planned policy to allocate liquidity to desired segments instead of automated. For this, of course, they need to do better homework as compared to deliver political statements and press conferences.
(The author is attached with AICMEU’s Baitulmal Co-op. Credit Society Ltd. Mumbai. He can be contacted at [email protected])