Raiding the reserves of central bank only shows ‘desperation’ of a govt: Subbarao

Former RBI Governor Duvvuri Subbarao on Friday said that any government trying to “raid” the balance sheet of a central bank can be seen as a desperate move.

“A government trying to raid the balance sheet of a central bank anywhere in the world is not a good thing. It shows that the government is desperate. We have to be very careful, very wary of what decision is ultimately taken on the transfer of the surplus reserves,” Subbarao said at the CFA Society India 4th India Wealth Management Conference.

The statement assumes significance in the light of a committee set up under former RBI governor Bimal Jalan on how much reserves from the central bank can be transferred to the Centre. Jalan is scheduled to submit his report soon.

Sovereign bond

On the issue of sovereign overseas bond, Subbarao said the government could test the waters one time as a short-term measure.

Speaking at the event Uday Kotak, Managing Director and CEO of Kotak Mahindra Bank, expressed concern over levy on risk capital wherein 60 per cent of one’s income goes to exchequer. “I frankly believe that we need to relook at the whole taxation system for risk capital,” Kotak said “Risk capital is taxed at close to 60 per cent. That’s an extremely high rate,” he added.

He also expressed his views on the economic slowdown, “India was close to 40 per cent of world’s GDP, when America was not even discovered, from a peak of 40 per cent we are down to 4-5 per cent,” he said.

He also spoke about the need of transformation in the country’s infrastructure, agriculture and digital aspect adding that it was not all gloomy.

“The present time is the darkness before the dawn and the lack of investment will get addressed within a year,” Kotak said.

Kotak also raised questions over the functioning of rating agencies and blamed housing finance companies and NBFCs for mismanaging operations that led to asset liability mismatches. Talking specifically about the slump in the auto sector, Kotak urged the Centre to give a stimulus package to bring the sector back to growth.

[“source=thehindubusinessline”]