Gurbachan Singh (for Info only, not official)

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Gurbachan Singh

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    ...This is being celebrated by many people. This column takes a different view. Suppose a country uses fixed exchange rates. If the demand for foreign exchange is high and the exchange rate cannot be increased to induce a reduction in demand, then the central bank needs to have adequate reserves so that it can supply foreign exchange and meet the excess demand. In contrast, under a flexible exchange rate regime, the price of foreign exchange can adjust to bring about a balance between demand and supply. In this context, foreign exchange reserves are not required under a flexible exchange rate regime. It is true that under a flexible exchange rate regime, flexibility can give way to considerable volatility in the foreign exchange market. In this case, it helps to have foreign exchange reserves with the central bank. However, this need arises a lot more if the central bank has multiple objectives than in the case where the central bank has adopted inflation targeting. ...

    Live Mint on Oct. 3, 2017, 9:38 a.m.

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    ...This is being celebrated by many people. This column takes a different view. Suppose a country uses fixed exchange rates. If the demand for foreign exchange is high and the exchange rate cannot be increased to induce a reduction in demand, then the central bank needs to have adequate reserves so that it can supply foreign exchange and meet the excess demand. In contrast, under a flexible exchange rate regime, the price of foreign exchange can adjust to bring about a balance between demand and supply. In this context, foreign exchange reserves are not required under a flexible exchange rate regime. It is true that under a flexible exchange rate regime, flexibility can give way to considerable volatility in the foreign exchange market. In this case, it helps to have foreign exchange reserves with the central bank. However, this need arises a lot more if the central bank has multiple objectives than in the case where the central bank has adopted inflation targeting. ...

    Live Mint on Oct. 3, 2017, 9:38 a.m.

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    ...The World Bank in 2015 estimated that prices are more than three times higher in the US than in India. This price differential is huge. This raises some interesting questions. Why aren’t very many tourists from the US attracted to India, if the prices are very low in India? Also, the price differential can be attractive to migrants who had initially shifted from India. In their retirement years, the migrants could return home but this hardly happens. Prices in the US are, as mentioned earlier, more than three times the prices in India. Let us consider this number in perspective. Pension funds in the US are, as discussed by Richard A. Marin, still going through a near-crisis as they have large unfunded liabilities. The size is still debated. If the shortfall is a quarter of the liabilities, then on one hand, a shortfall of 25% is viewed as a near-crisis. ...

    Live Mint on Sept. 5, 2017, 12:37 a.m.

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    ...To understand this, consider the US experience first. The Federal Reserve appears to target a 2% inflation rate. It is a positive rate because there can be wage-price rigidities that may be overcome by maintaining some inflation at, say, a 2%. This also gives the Fed room to reduce its nominal interest rate in a recession. To understand this, suppose that the real interest rate is 1.5% in normal times. Then the nominal interest rate normally would be 3.5% (2 plus 1.5). In this example, in a recession, the Fed can reduce the nominal interest rate by 3.5 percentage points before it hits the zero lower bound (ZLB). In practice, after the Great Recession hit the US around 2007, the Fed was constrained as it hit the ZLB quite soon. An important lesson is that it helps to have an inflation rate higher than 2%. Olivier Blanchard, then at the International Monetary Fund, suggested a target of 4% for the US going forward. In this context, it appears that the RBI is better placed than the Fed has been. ...

    Live Mint on Jan. 16, 2017, 1:16 a.m.

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    ...There is a need to recapitalize these banks, given the Basel capital adequacy norms. Also, given the policy of the government of India (GoI) to maintain the public-sector character of these banks, it is imperative that only the GoI recapitalizes these banks. The GoI can finance this recapitalization in three ways. First, it can increase its revenues. Second, it can increase its borrowing. Third, it can change its portfolio of existing assets; it can disinvest in some assets and increase its capital in PSBs. Given that the first two are not possible or not advisable, the Economic Survey of 2015-16 has made the following observation and suggestion: The GoI owns the central bank, viz., the Reserve Bank of India (RBI). It is interesting that the equity capital of the RBI (in different forms) is very large by international standards and also by other yardsticks. ...

    Live Mint on July 8, 2016, 4:16 a.m.

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    ...However, Reserve Bank of India (RBI) governor Raghuram Rajan has come out forcefully against relaxing fiscal targets (the prudential view). I focus on the prudential view and go beyond what Rajan said. The expansionary view presumes that a fall in the growth rate is a macroeconomic problem. However, this is not obvious. It is possible that the rise in growth rate some years ago was an unusual deviation from trend, in which case there is no need for any macroeconomic policy to address the subsequent fall in growth rate. Of course, if we aspire to a higher growth rate, there is need for suitable policies—but then we should treat it as a developmental rather than macroeconomic issue. Having said this, let me proceed as if the expansionary view is correct in treating the slowdown as a macroeconomic problem. Even then, is a larger fiscal deficit the answer? ...

    Live Mint on Feb. 17, 2016, 7:36 a.m.