Business Today

Beyond central banking

Dr Rakesh Mohan’s Monetary Policy in a Globalized Economy combines a policymaker’s know-how with a scholar’s precision.

Rana Kapoor | Print Edition: April 5, 2009

Much has been written about the current global crisis and the dilemmas it presents policymakers, commentators and market players with. However, when you combine a policymaker’s hands-on experience with an academician’s deep analytical rigour, you create a scholarly delight.

Dr Rakesh Mohan, Deputy Governor of the Reserve Bank of India (RBI), needs no introduction—his rich international experience and repute as a central banker speak for themselves. However, in the current context, his work goes beyond the premise of the central banker as he dwells not just on the conduct of monetary policy but also stylises a lucid examination of two broad themes—the evolution of banking & finance and the evolution of monetary policy & central banking. What sets this collection of essays apart is “a practitioner’s view”—an economist’s take on what should be, with an insider’s perspective on what works. He takes a wellstructured approach to documenting structural and sectoral policy options while laying the groundwork for what lies untapped. In terms of structural drivers, India’s fundamentals remain intact.

Credit growth is expected to remain fairly strong on relatively lower credit penetration and higher growth vis-à-vis other emerging markets, and there is no systemic supply constraint on the availability of financial resources with high private savings. Dr Mohan appropriately highlights the need to channelise these resources efficiently and effectively by way of knowledgebased banking, information management, and securitisation of corporate lending.

There exists a potential for developing institutional intermediaries to tap retail funds just as for bond market development. However, banking institutions will remain crucial in the foreseeable future while recognising the greater role for markets in industrial financing. Even as industry may see some temporary disruptions as the full effect of the current global crisis pans out, the agrarian-based nature of our economy provides us with the other big opportunity. This, as Dr Mohan rightly points, lies latent in improving agricultural credit and revitalising cooperative credit. There is an urgent need to improve rural infrastructure—mainly agri-business and supply chains to help expedite rural and agrarian development and strengthen risk appraisal and risk management strategies in the agricultural sector. These are unusual times; the world has not seen such rapid erosion of wealth and loss of sentiment in such a short span ever.

However, as Dr Mohan indicates, this presents us with a unique opportunity to sit back and reflect on what went wrong, what are the right lessons for the future. In such a context, the Indian case stands out as one of resilience and stability amidst turmoil wherein transformation in the conduct of policy has not only fostered growth but also anchored it, propelling it from the Hindu rate of growth of 3.5 per cent before 1991 to the consensus 5.5-6.5per cent, even in times of stress. However, the RBI’s role in piloting the India growth story in the context of increasing globalisation cannot be ignored. As Dr Mohan’s writings underline, a ‘wait and watch’ approach has worked and monetary policy has been effective in balancing inflation with high growth while ensuring financial stability.

Dr Mohan takes a well-structured approach to documenting structural and sectoral policy options while laying the groundwork for what lies untapped.

Rana Kapoor is Founder, Managing Director & CEO of YES Bank


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