"100 Small Steps" is the title of the report prepared by the present RBI Governor Raghuram Rajan in 2008 when he was working with the Planning Commission of India. Link to the report: 100 Small Steps
The report highlights 100 changes that could be made to the present economic system in India to make it more competitive. These changes have been broken down into various categories such as macro economy, leveling the playing field, creating more efficient and liquid markets, creating a growth friendly regulatory environment, creating robust infrastructure for credit and broadening access to finance.
As this article from NDTV highlights, the recommendations from this report were far from being implemented up to 2013 Report on the progress on implementation of the Planning Commission report "100 Small Steps"
The businesses are looking for opportunity and the country that can seize this moment and capitalize on the opportunity, will get the next decade of growth and investments coming its way.
In light of this, I think this is the right time for the implementation of the 100 small steps highlighted by Raghuram Rajan in this Planning Commission report A HUNDRED SMALL STEPS and shatter the fetters of the Indian economy that has been holding us back for so long.
I will be discussing this report and various points highlighted in this report in my upcoming blog posts.
Proposal 1: The RBI should formally have a single objective, to stay close to a low inflation number, or within a range, in the medium term, and move steadily to a single instrument, the short-term interest rate (and reverse repo) to achieve it.
--On this proposal, I would say that growth should be a concern of the RBI and not just inflation. In a country such as India, where a bulk of oil, coal and gas are imported, there are significant chances of hyperinflation (cost of goods rising due to weak Rupee and expensive imports) and hyper inflation does not reflect upon true growth of the economy.
Proposal 2: Steadily open up investment in the rupee corporate and government bond markets to foreign investors after a clear monetary policy framework is in place.
--On this front, Indian businesses are now allowed to borrow in Rupees under the External Commercial Borrowing route, but we don't have a domestic corporate bond market open to foreign investors as has been suggested here. That would attract significant capital into the country since a large majority of Indian corporation have very sound credit ratings.
Proposal 3: Allow more entry to private well-governed deposit-taking small finance banks offsetting their higher risk from being geographically focused by requiring higher capital adequacy norms, a strict prohibition on related party transactions, and lower allowable concentration norms (loans as a share of capital that can be made to one party).
--I think this has been implemented in a large part with increasing number of new bank licenses being given out.
Proposal 4: Liberalize the banking correspondent regulation so that a wide range of local agents can serve to extend financial services. Use technology both to reduce costs and to limit fraud and misrepresentation.
--This is where Information Technology could play a significant role where secure Information Systems services and infrastructure could go a long way in improving the accessibility to banking services.
Proposal 5: Offer priority sector loan certificates (PSLC) to all entities that lend to eligible categories in the priority sector. Allow banks that undershoot their priority sector obligations to buy the PSLC and submit it towards fulfilment of their target.
--This would lead to more inclusive growth I think.
I will highlight more aspects of this report in my upcoming blog posts.
Next blog post in this series: A Hundred Small Steps: Part 2
The report highlights 100 changes that could be made to the present economic system in India to make it more competitive. These changes have been broken down into various categories such as macro economy, leveling the playing field, creating more efficient and liquid markets, creating a growth friendly regulatory environment, creating robust infrastructure for credit and broadening access to finance.
As this article from NDTV highlights, the recommendations from this report were far from being implemented up to 2013 Report on the progress on implementation of the Planning Commission report "100 Small Steps"
The businesses are looking for opportunity and the country that can seize this moment and capitalize on the opportunity, will get the next decade of growth and investments coming its way.
In light of this, I think this is the right time for the implementation of the 100 small steps highlighted by Raghuram Rajan in this Planning Commission report A HUNDRED SMALL STEPS and shatter the fetters of the Indian economy that has been holding us back for so long.
I will be discussing this report and various points highlighted in this report in my upcoming blog posts.
Proposal 1: The RBI should formally have a single objective, to stay close to a low inflation number, or within a range, in the medium term, and move steadily to a single instrument, the short-term interest rate (and reverse repo) to achieve it.
--On this proposal, I would say that growth should be a concern of the RBI and not just inflation. In a country such as India, where a bulk of oil, coal and gas are imported, there are significant chances of hyperinflation (cost of goods rising due to weak Rupee and expensive imports) and hyper inflation does not reflect upon true growth of the economy.
Proposal 2: Steadily open up investment in the rupee corporate and government bond markets to foreign investors after a clear monetary policy framework is in place.
--On this front, Indian businesses are now allowed to borrow in Rupees under the External Commercial Borrowing route, but we don't have a domestic corporate bond market open to foreign investors as has been suggested here. That would attract significant capital into the country since a large majority of Indian corporation have very sound credit ratings.
Proposal 3: Allow more entry to private well-governed deposit-taking small finance banks offsetting their higher risk from being geographically focused by requiring higher capital adequacy norms, a strict prohibition on related party transactions, and lower allowable concentration norms (loans as a share of capital that can be made to one party).
--I think this has been implemented in a large part with increasing number of new bank licenses being given out.
Proposal 4: Liberalize the banking correspondent regulation so that a wide range of local agents can serve to extend financial services. Use technology both to reduce costs and to limit fraud and misrepresentation.
--This is where Information Technology could play a significant role where secure Information Systems services and infrastructure could go a long way in improving the accessibility to banking services.
Proposal 5: Offer priority sector loan certificates (PSLC) to all entities that lend to eligible categories in the priority sector. Allow banks that undershoot their priority sector obligations to buy the PSLC and submit it towards fulfilment of their target.
--This would lead to more inclusive growth I think.
I will highlight more aspects of this report in my upcoming blog posts.
Next blog post in this series: A Hundred Small Steps: Part 2
Here is the kind of robust bond market that we would like to see in India: http://t.co/xDev7IQ96T
ReplyDeletehttp://linkis.com/shar.es/YPw7s