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The RBI chant

REAL GDP GROWTH in the current year could be about 6.5 per cent, a few notches lower than the potential 7-8 per cent, admits the Reserve Bank of India in its Annual Report, 1999-2000. The real-life confession has to be placed beside the budgetary rhetori c of the Finance Minister, Mr. Yashwant Sinha, to usher a `Decade of Development' with 7-8 per cent growth per annum. For that to happen, the RBI specifies a step-up in real investment, technology enhancement and efficiency gains. But these are not happe ning. The RBI puts the potential growth of the Indian economy in the 6-10 per cent range. Quality growth is not happening and the RBI Annual Report cannot be blamed if its prescriptions read the same as the earlier editions.

The rate of gross domestic saving, as per quick CSO estimates, is estimated at 22.3 per cent in 1998-99, down from 24.7 per cent in 1997-98. In tandem, the rate of nominal gross capital formation has dipped from 23.4 per cent in 1997-98 to 21.8 per cent in 1998-99. Asset creation is not on, and banks have nowhere to deploy funds. The Annual Report concedes the point saying that ``in the absence of enough corrective actions, the elbow room available for public spending for creation of capital assets and social capital has become limited.'' A drop in public capital formation implies a slowdown in social and economic assets, seriously denting private sector initiative. ``Besides, the private sector investments which depend on public sector project demands may not fructify, or lose momentum,'' adds the Annual Report. Perhaps the case of the Rural Infrastructure Development Fund (RIDF) could suffice. Against a total corpus of Rs. 18,000 crores, the cumulative sanctions and disbursements stood at Rs. 14,386 crores and Rs. 6,269 crores respectively till end-June 2000. State governments have not been able to launch projects, while many others are stuck in land cases, and the breviary offers no comfort.

If, then, the RBI has to regularly preside over and correct a functioning crisis by keeping a rein on the rupee-dollar and interest rates, it ceases to be news. A central bank can at best be a growth facilitator but cannot ensure growth as economic polic ies lie outside its ken. This year, apart from the usual quota of ill-luck, crude prices have started climbing. While the central bank can easily rustle up an extra $5-10 billions from its reserves of around $35 billions, the Annual Report makes the poin t that it is necessary to contain the share of oil shocks at no more than one-fifth of total imports to insulate the economy from cost-push inflation arising from oil price hikes.

Will the oil import bill behave? A stiff dollar bill could deplete the collection box for the next year assuming foreign investments to be on a low and also set up ``unwarranted expectations'' in the market. It may not be the best way to garner dollars, but as of now a high-cost fresh bond of some $5 billions could calm fevered brows in the money and forex markets. One assumes that the NRIs and others will be as kind to a bond issue as they were some two years ago when the Resurgent India Bonds (RIBs) m opped up slightly over $4 billions at attractive, off-market rates. A fresh foreign bond issue could see the RBI's reserves bulge but add to rupee liquidity which, however, can be mopped up by government floatations. Interest rates then need not go up. F or too long has New Delhi misbehaved and the RBI offered bail, and the Annual Report details, yet again, the cost to growth. The RBI's constitution does not allow for more.