'Global confidence is being shaken up once again'

Excerpts from RS MP N K Singh's speech

Sir, the first point that I would like to bring to the Finance Minister's notice is a caution that we need to exercise in view of the likely contingent effect of what is happening in the rest of the world. I think he is sagacious enough to move to a path of fiscal consolidation.

Greece is already bankrupt. Portugal and Spain are in trouble. Italy is in trouble. This is really shaking up, once again, the global confidence and the contingent effect of this on Asia and India is something that can't be overlooked.

You see the first consequence of this, Mr Finance Minister. If you look at the last two quarters' figures, there has been a decisive increase in the current account deficit. The rupee has continued to appreciate considerably, exports are really being hurt and, therefore, employment-intensive industries are beginning to hurt. I think we really need to learn how to prevent the unwanted effect of a large inward capital flow.

I would like to know whether the Finance Minister will resort to either increased sterilisation by the Reserve Bank of India (RBI) or in some form move towards what the world has preached, some amount of control on unmitigated large capital inflows driven not only by arbitrage but also looking at the conditions of the financial situation in Europe. This is the first caution on exports.

The second point that I would like bring to his notice is, as we begin to look at the year as to a whole, how do we resolve the regulatory conflicts? Do we need to have a super regulator? Do we need to emulate the examples of some other countries of having the central bank undergo a reform? Do we need to create and carve out the regulatory functions of RBI into a different entity altogether? Is the financial stability forum, of which he is likely to be the chairman, an answer to resolving these inherent regulatory conflicts between different kinds of regulatory entities that have now dominated our focus? So, we need to really revisit this area.

The third thing that I would like to bring to his notice, apart from regulatory conflicts is that, similarly in debt management, there is an inherent conflict. The RBI is really the in-charge of the overall credit and monetary policy. But it is also the government's principal debt management agent. So, the old proposal of having really a separate debt management office is something which, in the period after the passing of the Financial Bill, the Finance Minister may like to give some attention to.

The next point I would like to make before him is this: The Finance Minister was quite sanguine that, since he has brought down the amount of borrowing, the crowding out effect of that on private investment was likely to be minimal. But the fact remains that interest rates have tended to move up. The crowding out effect on private investment is something that, Mr Finance Minister, we need to watch out for if we are not to smother the green shoots of investment.

Finally, I think, it is inherent in the act of Budget-making that we are spared the surprises on the 28th and 29th of February to our choosing. Would you consider sharing with this House, at each Session of Parliament, your assessment of the overall macro scenario, your assessment of expenditure trends, your assessment of revenue trends and how really we need to re-adapt our strategy to meet the daunting challenges of getting back to an 8.5 per cent rate of growth and then, moving towards a plus 10 per cent rate of growth that is what the Prime Minister has committed?

I thought, at this stage in the debate, Mr Finance Minister, I would bring some of these points to your notice so that these could be kept in view during the course of this fiscal year.

(Excerpts from the speech of Rajya Sabha MP from Bihar, N K Singh, during the debate on the Finance Bill on May 4, 2010)