Amidst all the political drama, the prime minister has taken over the finance ministry. This is when he already holds other ministries as additional charges, including the one run by P R Dasmunsi who is currently unwell. It is not fair to expect him to handle the finance ministry which, in the current environment, needs so much attention. Fortunately, he has an eminent personality who has worked with him for more than a quarter century and in whom he has full confidence. That person is C Rangarajan. He is already a member of the Rajya Sabha. His appointment as the finance minister will also restore the prestige of the Reserve Bank of India as he is likely to listen to the latter’s views unlike his predecessor who ran the show with only one objective, viz, winning the next election.
Rangarajan is apolitical as is evident from the fact that he has survived in various offices despite so many changes in the Union government. More importantly, he will bring some sobriety to our monetary policies. Besides the trillions of dollars released in the international markets by western nations some of which may percolate down to India as well in course of time, the RBI itself has pumped massive amounts of money into the economy. The “liquidity problem” cited by the corporate world is a ruse to get interest rates reduced. Such reductions will not make a dent in the prices of industrial commodities as data on company finances show that interest constitutes a small proportion of the cost. On the other hand, it will contribute to the profits of enterprises. While no one holds any grudge against a company making profits, there should be a limit to avarice. A fall in the lending rates will lead to a fall in deposit rates which will aggravate the suffering of the people, especially those with fixed incomes. That there is no liquidity problem is evident from the round tripping of money of banks to the RBI through reverse repos and the trends in the call money market. There is enough liquidity released that will have the lagged effect of raising the inflation level to double digits in another three or four months when it would be time for the general election. The current approach is thus counter-productive from the standpoint of winning the election. It is in this context that an inflation fighter like Rangarajan can bring some moderation to the Rambo spirit of RBI.
A Seshan, Mumbai
Readers should write to:
The Editor, Business Standard,
Nehru House, 4, Bahadur Shah Zafar Marg, New Delhi 110 002,
Fax: (011) 23720201; letters@bsmail.in
