Revenue Slip Showing : Reddy

Eminent economist PR Brahmananda came down heavily on the central government today for acting like the 'Bakasura' and sucking out liquidity from the banking system. Brahmananda was speaking at a seminar on "Current problems of the Indian economy" organised by Centre of Advanced Study, Department of Economics, University of Mumbai, along with ICSSR and Centrum Finance Ltd.

The Reserve Bank deputy governor YV Reddy, speaking at the seminar hinted that the central bank will continue with its soft interest rate bias. Reddy said, "Monetary management, since the announcement of the October credit policy, followed what was stated in the policy and we will continue to follow that." The RBI earlier announced a 50 basis point cut in the bank rate to 6.50 per cent and a two percentage point cut in the cash reserve requirement to 5.50 per cent.

 

The RBI deputy governor said that most of state government finances are under strain and the central government may also end the fiscal with revenue shortfall. Reddy, however, said that the external situation is well under control and expected that the current account deficit of the country may come below the one per cent level on the back of low non-oil and non-gold imports.

Brahmananda expressed his concern over the low infrastructure investment despite a very liquid money market condition and low interest rate regime. He said, "The government is raising funds mainly to finance its revenue deficit, but not for investment expenditure. This will have serious consequences so far as the growth of the economy is concerned."

He argues that the RBI and the central government should come out with a mechanism to channelise excess fund available with the banks and the financial institution for infrastructure activity.

"Only the provision for adequate expenditure can generate a sustainable demand, and for that the present system of financing the revenue deficit through market borrowing has to be stopped," the economist argued. Brahmananda also expressed dismay over the delay in the implementation of the fiscal responsibility bill in the parliament.