An Awesome Prospect

An Awesome Prospect THE Reserve Bank of India's annual report for 1992-93 provides, as usual, comprehensive and up-to-date data on the Indian economy, but the perspective it brings to bear on macro-economic policies, particularly those relating to the bank ing and financial sectors, is depressingly narrow. The picture that emerges from the report's pages is of an ivory tower institution far removed from societal and developmental concerns. The promotional goals of the financial system are being buried; the central bank's policy interventions would henceforth all be through indirect instruments out of touch with the realities of the market place. Except for Messianic faith in the righteousness of stopping automatic monetisation of the budget deficit and ensuring government borrowing at market-related rates of interest, the annual report shows few traces of any independent judgment on macro-economic policy issues, whereas a minimal sense of central banking autonomy should have made the Reserve Bank pause and ask why the devoted pursuit of IMF/World Bank programmes for two to three years has failed to bring about even enduring fiscal reform. No sooner has the standby arrangement with the IMF come to an end than there have occurred significant slippages in respect of the gross fiscal deficit as well as the monetised deficit Though the improvement in the supply position as a result of the bumper crop has been referred to, overwhelming importance is attached in the report to fiscal control and contraction of monetary growth in securing inflation control, ignoring the structural causes of the break in inflationary expectations. As data in the report bring out, inflation rates had been low in 1988-89 and 1989-90 when monetary growth had accelerated and budget deficit was high. While the bumper crop has been decisive in containing inflationary expectations in 1992-93, and in the current year so far, the fiscal compression has had its effect primarily in bringing about stagnation in industrial growth and in the provision of public services. However, there is not even a cursory reference in the report to the persistence of recessionary conditions in vast segments of Indian industry due to the cuts in the government's development expenditure and in overall public sector investment. The implications of the sharp fall in the gross domestic investment rate from 27.1 per cent in 1990-91 to 24.8 per cent in 1992-93 or in the gross domestic saving rate from 23,7 per cent to 22.5 per cent are similarly lost on the RBI. As a direct consequence of misguided policies encouraging conspicuous consumption and import of gold and silver, household saving in financial assets as percentage of GDP dipped to 7.7 per cent in 1992-93, its lowest level in recent years, from 9.1 per cent in 1991-92. The modest improvements in the saving ratios of the public and private corporate sectors have been evidently more than offset by the decline in household saving.