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Saturday, December 10 2022
Business

‘Financial sector can support an economy but cannot lead it’

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Manipal: The former director of the Reserve Bank of India (RBI), Dr. Y. V. Reddy interacted with the students of TAPMI on various economic and financial issues at the 20th Leadership Lecture of the institute.
Answering questions framed by students of TAPMI, he said that countries like USA, UK, China, and Russia have spent a lot on research and development and the Indian government should follow suit. He also said that it is unadvisable to impose minimum spending limits on Indian corporates with regard to the same.

Carrying on with the issue of spending, he said that it should be undertaken only by the government and the reliance on private sector and public sector banks should reduce. The strength of public sector banks lies in funding working capital and small loans rather than financing infrastructure projects. The way forward lies in structuring finances better.

Regarding the possibility of having different inflation indices for different states, he said that even though there are a lot of deficiencies in the indices that measure inflation, it is unfavorable to have separate indices for different states. For policy framing purposes, it is ideal to have only one index such as the Consumer Price Index, the Wholesale Price Index or the Producer Price Index as more indices only complicate matters.

Moving forward, he said that that there exists no tradeoff between inflation and growth and that the RBI has to harmonize with the government when it comes to policies, maintain operational autonomy and coordinate when it comes to structural changes.

On the issue of external debt management and whether the percentage of external debts maturing after a year are worrying signs or not, he said that the presence of sufficient amount of reserves is enough to not cause any worries.

He also said that the recommendation of the Financial Sector Legislative Reform Commission (FSLRC) to shift the regulatory power of money market from RBI to SEBI is not important. The emphasis is on cooperation and not on separation. According to him, FSLRCs should be managed by the RBI as it has the necessary tools to handle a financial crisis, should it arise.

‘Financial sector can support an economy but cannot lead it’
‘Financial sector can support an economy but cannot lead it’

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