In a mammoth 90-minute speech last week at the Vivekananda International Foundation, the organisation’s chairman S Gurumurthy, also Editor of Thuglak magazine and RBI Board member, touched upon a variety of topics in a lecture titled ‘State of the economy: India and the World’. A few excerpts:
On loss of Indian confidence
Colonisation lasted for 200 years. Now it’s abused as one of the worst happenings in the history of the world. It dominated the world, our minds, it left its imprint. Even today, we suffer from hangovers of colonisation. The colonisers feel guilty about colonisation. But, the colonised people are not feeling sad that they were colonised. They revel in things which colonisers left. It is paradoxical phenomenon.
Capitalism came and was exhausted in 100 years. Then came socialism which became irrelevant in 50 years. Then came globalisation which has become irrelevant in 25 years.
We are gripped by thinking which was foisted on us. It leaves us confronting what and who we are. Without this understanding of what the state of the Indian economy is and what are its solutions, we are never able to understand how the Indian mind has been shaped. Colonisation, capitalism, communism, globalisation, in succession, made us feel that we cannot do anything. We must wait for others to tell us what we should do. That is how we accepted globalisation.
Dollarisation of the world is something we have to think on, but we are not.
How can we get out of this? We have already started doing it. However, there is no discourse.
When petrol price goes up, the dollar value depreciates which will partly compensate for the oil prices. But, this has stopped from 2015. This is because America allowed American oil companies to export oil. They began producing enough oil that their imports came down by 23 per cent in 2016. They began exporting oil. There is no trouble for America from the rise in crude prices. This is a complete shift from the 1950s.
In the last three years, not only are crude prices going up, but also dollar prices, which is a double-whammy for oil importing countries which are dollarised in their economy. Trump is not bothered about oil prices because of the shift in correlation between oil and the dollar, a subject which is ignored in Indian discourse. Our idea is how to find fault with the government. Our idea is politics.
On Printing currency
America printed $4.5 trillion between 2008 and 2014. They issued digital currency and saved the local economy, funded the global economy and no one said the US Fed was wrong in doing so. But, if any other country had done it, they would say it will die of inflation. We have given up the right to print our own currency through the FRBM law. The government of India has given up the right to print the Indian rupee.
The Indian rupee gets expanded only when the dollar comes into India and when RBI acquires the dollar, it prints Indian rupees and gives it to the banking system. There is no other way the Indian rupee gets generated today. If there is dollar inflow, Indian rupee supply will increase. If $30 billion goes out of India, then Indian rupee supply will be withdrawn. Has anyone evaluated the economic consequences of it?
The government of India cannot borrow from RBI by firing its securities. That the Centre should not borrow excessively is understandable, but that it should not borrow is not. We pleaded with the Centre, after which they constituted a committee in 2015 to amend the FRBM law which was passed in 2002 when the world thought that there should be no printing of currencies and that the market will take care of the whole thing.
This has become outdated economics because the US itself has printed $4.5 trillion.
Japan began printing $40 billion every month from October, 2015. Today, they have increased the size of printing to $70 billion per month. Have we ever discussed this in the context of India? It is not necessary that if they print we should print. But, if we need it, can we print today?
There is a liquidity problem. Can the government of India say I will give you `1,00,000 crore worth of government securities, you give me the cash? The government of India cannot do it because it has passed a law giving up that power. Our economists will say that the printing of currency is wrong. You cannot give it to politicians and it should be with RBI.
The central bank will print currency only when the dollar comes in. Can you have national economics based on the inflow of foreign exchange? These are the issues which will decide the state of the economy in India and the solutions which we need to find.