Just as the US Fed chose to take the long end of the yield curve by the scruff of the neck, Mr. Srinivasan has argued that a similar method should be adopted by the Indian central bank. He seemed frustrated that despite RBI lowering rates, Indian firms are not getting access to funding as most banks are parking their surplus liquidity in government securities. Furthermore, increased government borrowing is also leading to crowding out of private investments. Thus, printing money by the RBI and buying back bonds from the market seems to be the only way out as per the new CII President. Furthermore, since the inflation is also very benign at the moment, the odds that such a step might lead to runaway inflation are also on the lower side. Although he was aware that such a step might unleash a fresh round of sovereign downgrades, it also carried an upside with it in the form of greater GDP growth. The central bank must have indeed deliberated upon such an idea but seems to be adopting a wait and watch approach at the moment.
It is important to look at the holistic picture and have an individual opinion rather than get swayed away by the public consensus. This is the view of the man who pioneered the retailing boom in India - Mr. Kishore Biyani, the founder of India’s largest retailing company - Pantaloon. In an article in the Wall street Journal, Mr. Biyani wrote, "Almost daily doses of bad news on television screens and newspapers have possibly done as much damage to the economy as the events on either side of the Atlantic." I completely agree with him. Mr. Biyani’s predicament is based on the fact that an overwhelming majority of Indian consumers are self-employed, who can neither get laid off nor can have pay cuts. Consider some statistics he has provided. The share of the national income represented by proprietor-run concerns and partnerships is 35%. The share of companies is around 15%, government around 25%, and agriculture around 25%. Combine agriculture and the self-employed in industry a...
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