Monday, April 8, 2013

Indian Government Wants to Takeover the RBI

The struggling Indian government wants to take over the the Indian central bank, RBI. Since last year and half or so, the Indian economy is struggling and the phony growth rate numbers have fallen down from over 9% per annum to 5%. The government desperately wants RBI to print more money and reduce the market interest rates to allegedly start the economic recovery, but the RBI governor, Subbarao, is reluctant because he is fearing inflation. This has infuriated the politicians and bureaucrats, and now they are planning a full-fledged takeover of RBI's main function of determining the monetary policy. They have presented a bill in the parliament to put bureaucrats on the panel of monetary policy committee while simultaneously reducing the powers of RBI governor to single-handedly determine the monetary policy. If they are successful in this coup d'état, then, the danger of a massive inflation in the Indian economy increases by manyfold factors. I analyze this vital new development in the Indian economy in my new video blog below.




5 comments:

  1. Dear Blogger,

    Thanks for your post. It is a humble request to you to write a critical analysis of "definition of rupee" and along with new concept "e-money" allowed by RBI recently.

    http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/30758.pdf

    Thanks.

    ReplyDelete
  2. A quick reply to your first question. Wiki entry of rupee: "The rupee is the common name for the currencies of India, Pakistan, Sri Lanka, Nepal, Mauritius, Seychelles, Maldives, Indonesia (as the rupiah), and formerly those of Burma and Afghanistan. Historically, the first currency called "rupee" was introduced in the 16th century by Sher Shah Suri, founder of the Sur Empire of Northern India. The term is from rūpya, a Sanskrit term for silver coin, from Sanskrit rūpá, beautiful form." It was originally defined as, "a silver coin weighing 178 grains (11.534 grams)". Rupee was just one name of underlying unit weight of silver. Now underlying silver is gone and they call worthless paper currency, rupee! More when I tackle this issue in future.

    ReplyDelete
  3. Thank you sir,

    I also would like you to put some light on the following issues, which I found are very crucial to understand.

    1. Which actions of RBI can be considers as 'Money Creation' or 'Money supply' which mainly causes inflation in India. e.g. Fractional reserve banking, FII, FDI, e-money, lending by commercial banks, CRR control, interest rate control.

    2. Why private banks are allowed in India as being a socialist country. Why only few private banks are allowed? Does such kind of impartiality violate my fundamental right under Article 19 (1) (g) of Constitution of India.

    3. It is not such a foolishness to publish rupee India based on USD which is a fraud currency in the eye of American economists like Murray Rothbard and Ron Paul and others?

    I will be very much thankful to you if you can give some time and post about it. I have read your paper about inflation but I think there are some issues which are missing. Much thanks.

    ReplyDelete
    Replies
    1. 1. Which actions of RBI can be considers as 'Money Creation' or 'Money supply' which mainly causes inflation in India. e.g. Fractional reserve banking, FII, FDI, e-money, lending by commercial banks, CRR control, interest rate control.

      RBI has three tools of controlling the money supple: 1) Bank rate (what you are calling interest control), 2) CRR (Cash Reserve Ratio), and 3) OMO (Open Market Operations), which is the main tool via which RBI monetizes government's debt by purchasing its bonds in the open market. RBI creates base money, mainly via OMO and Bank rate, on which the commercial banks pyramid their money via fractional reserve banking, which is called 'money creation'. Read Rothbard's 'The Mystery of Banking' for thorough understanding of how this whole central and commercial FRB banking system functions.

      2. Why private banks are allowed in India as being a socialist country. Why only few private banks are allowed? Does such kind of impartiality violate my fundamental right under Article 19 (1) (g) of Constitution of India.

      India these days, after the reforms, is more of a fascist country - during planning time also it was a fascist country where few business tycoons were controlling most of the industries - where government works with their crony big corporatist friends to loot the public. And the constitution is only name sake. It just doesn't matter much, as you can also see in USA. The whole idea of some kind of a social contract between people and the state is a myth. There is no such social contract. You don't have any rights, and the constitution is not going to protect your rights. Existence of government means violation of fundamental human rights which are nothing but private property rights. Government owns you and your property. Everyday events makes this matter amply clear. Read more Libertarian works of Rothbard, Hans Hermann Hoppe etc. to understand these matters.

      3. It is not such a foolishness to publish rupee India based on USD which is a fraud currency in the eye of American economists like Murray Rothbard and Ron Paul and others?

      Rupee is not USD based. It is an Indian currency which once was defined as an underlying unit weight of Silver. USD is an international currency so rupee has its exchange rate with dollar as with all other foreign currencies. Dollar is needed to buy important foreign items like Oil, and so it seems that Rupee is tied mainly to Dollar.

      Delete

Please leave a civilized and intelligent comment. Usage of bad language is strictly prohibited. I always welcome a healthy discussion.