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Updated: September 3, 2013 22:40 IST

BoP crisis is due to micro factors also: Gokarn

Staff Reporter
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Subir Gokarn
Subir Gokarn

Former Deputy Governor of the RBI Subir Gokarn, on Monday, warned that unless India realised that micro factors too have played a role in causing the balance of payments crisis, the current account deficit (CAD) may not be contained.

“The point is that there are global factors, but there also very proximate, very direct factors such as iron and coal that act on the current account,” said Dr. Gokaran, who was giving a speech on the topic ‘Emerging Issues in Banking & Finance’ here on Monday.

“The current account deficit’s explosive increase in the last two years is largely attributable to two factors. One is that we stopped exporting iron ore, and two that we started importing coal. We were importing virtually no coal five years ago… now we import nearly $8 billion worth of coal,” said Dr. Gokaran. According to him, unless India solves these micro-factors directly, “we may not able to achieve the objective of containing the current account deficit.”

“This is something very important to recognise… that there are very micro-factors and micro-causes that connect with micro problems. There are, of course, macro causes and macro factors, but these [coal and iron] are more proximate,” he said.

Liquidity withdrawal

Talking about the side-effects of ‘liquidity withdrawal’, Dr. Gokaran admitted that “some of us have indeed paid the price for the consequences of active liquidity infusion that was done to combat the decline in economic activity in late 2009”.

“The question is, do we use the instruments we have at hand just to save the situation? If you are a doctor in the emergency room, do you do everything you can just to save the patient even though you know it will have a long-term adverse effect on him?,” he said.

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“If you are a doctor in the emergency room, do you do everything you can
just to save the patient even though you know it will have a long-term
adverse effect on him?,”
This was the highlighting point that everyone should understand and try
to implement it, specially Indian Govt.

from:  Sachin Patil
Posted on: Sep 4, 2013 at 10:53 IST
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