Look Within to Make Do Without

The Economic Times     15th June 2020     Save    
QEP Pocket Notes

Context: The evolved fiscal status of India and a comparison of domestic banks with multilateral institutions showcase India's capability to achieve self-reliance. 

Evolved Economic strength of India: Reducing dependency on multilateral institutions:

  • International Bank for Reconstruction and Development (IBRD)
  • The outstanding loans of IBRD serving almost all 200 countries, total $192 billion in June 2019.
  • The State Bank of India (SBI), India’s largest lender, had total loans outstanding of about $300 billion at last count.
  • India had an outstanding debt of about ?1.05 lakh crore (beginning 1950)
  • SBI lent ?25,000 crores in one go to a developmental financial institution in almost two weeks.
  • International Monetary Fund (IMF): primarily extends support to countries during forex problems.
  • IMF had outstanding credit of about $122 billion as at the end of May 2020, which is lower than at least three Indian banks.
  • Resurgent India bonds after Pokhran 2 nuclear tests, helped us tide over what many predicted would be the end of the road for India

Way Forward: 

  • Internalize the idea of self-reliance: by avoiding fiscal fundamentalism as it hurts the body economic.
  • Borrow domestically: as the idea of ‘crowding out’ of private entities stands on a weak ground due to the endogenous nature of money supply.
  • Excessive supply of money: as against the mandated 18% Statutory Liquidity ratio, banks are sitting on about 28% of government securities.

Conclusion: ‘The only thing we have to fear, is fear itself’ — delivered by the US President Franklin D Roosevelt in his inaugural address in 1933 (the height of the Great Depression), should guide policymaking today.

QEP Pocket Notes