14 January 2017
Pay heed to Urjit Patel
Reserve Bank of India Governor Urjit Patel’s emphasis on the vital importance of protecting domestic macroeconomic stability could not have come at a more crucial juncture. With the Centre in the process of finalising the Union Budget, Dr. Patel has stressed the need to ensure that it does not stray from the path of fiscal consolidation, at a time when the external environment is already adverse and likely to remain uncertain for the foreseeable future. That the clamour for a sizeable fiscal stimulus is likely to grow louder as budget day nears is a certainty, given the signs that an incipient demand slowdown may have been exacerbated by the cash crunch caused by the withdrawal of high-value banknotes. Within the government too, the temptation to loosen the purse strings to assuage adverse reaction to the demonetisation decision is likely to be high. It is in this context that the RBI chief’s reminder to the Centre that “borrowing even more and pre-empting resources from future generations” cannot be a short cut to achieving durable long-term “higher growth” is significant. With the general government deficit among the highest in the G-20 economies, Dr. Patel reiterated what several of his predecessors including Y.V. Reddy have harped on: high levels of government borrowing tend to crowd out private investment and paper over the urgent need for more abiding reforms.
Specifically, the RBI chief has suggested that government expenditure be ideally reoriented towards creating more public infrastructure such as expanded railway networks and urban mass transit systems that would help boost productivity even as it leads to reductions in the oil import bill and provides the collateral benefit of improved air quality. And in what could be seen as an expression of assertion of the RBI’s independence of thought, Dr. Patel spoke of the risks that policy interventions in the form of government guarantees and interest rate subventions pose. While not directly alluding to Prime Minister Narendra Modi’s announcements last month, which included a doubling in credit guarantees for micro, small and medium enterprises, the RBI chief said that “large credit guarantees also impede optimal allocation of financial resources and increase moral hazard.” With such guarantees only adding to the government’s liabilities and raising the risk premium on its borrowing, the better solution, he suggested, would be to resolve constraints such as transaction costs related to clearances and the taxation bureaucracy. As Dr. Patel said, “it is easy and quick to fritter away gains regarding macroeconomic stability”. But, as he added, it would be “hard and slow to regain them”.
AD: Aggregate Demand
Pakistan’s vanishing voices
Over the past few days, five Pakistani activists including the poet Salman Haider have gone missing. The incidents have left the rights groups, already under pressure from the military and extremist outfits, alarmed. Nobody has claimed responsibility, and the family members haven’t got any ransom calls. The government says it will find them, but the investigation that started after Haider’s disappearance on January 6 seems to have reached nowhere; since then four more have gone missing. Although the full facts are not available, the perception that the disappearances are somehow linked has gained credence. They were all active social media-based campaigners for human rights and critical of the military and its support for militancy. They challenged the extremist narrative propagated by the fundamentalist groups and promoted the idea of a modern, inclusive Pakistan, largely through Facebook posts and blogs. Haider was known for his strong stand on rights violations in Balochistan.
This is not the first time activists and writers critical of the military-terror complex have come under attack in Pakistan. For years both the security apparatus and militant groups have used force to silence critics. Liberal activist and author Raza Rumi, who had criticised state support for militants, was attacked by an extremist outfit in March 2014. A year later, activist Sabeen Mahmud was shot dead in Karachi after she hosted a debate on Balochistan. This time the victims are social media activists, and it is not hard to see the pattern. In Pakistan where television faces censorship and the print media is under pressure, social media platforms are a thriving space where people express views without fear. Whoever is behind the disappearances is targeting such free debates. This should be a wake-up call to the Pakistani state. Some commentators have already implicated the state, citing the pattern in the disappearances and the military’s track record in dealing with dissent. The Interior Minister has said the government “is not in the business of disappearing people”, but he has the responsibility to find out what happened to the activists. For decades Pakistan tolerated a culture of violence within its society for political and strategic benefits, but this has backfired. Liberal space is shrinking in the wake of challenges from the extremists that benefited from the state’s tolerance of violence. The government has to take bold measures to check these groups and promote free and fearless thinking if it wants the already vulnerable democratic dynamics to survive.