NEW DELHI: The prevailing global financial crisis has only added to the problems of the Indian economy as a result of “mismanagement” by the United Progressive Alliance government, the Bharatiya Janata Party has charged.
At a press conference here on Tuesday addressed by three BJP stalwarts, including two former Finance Ministers — Jaswant Singh, Yashwant Sinha and Arun Shourie — the party gave its own prescription for handling the current crisis that has seen volatility in the stock exchange as well as the money and foreign exchange markets.
The problem of liquidity in India had not arisen as a result of the fault lines in the American or European banking systems or even the sub-prime crisis that came to the fore nearly 18 months ago, but the result of severe imbalances created by the raising of the cash reserve ratio (CRR) for banks from 5 to 9 per cent in a short span of time taking out liquidity from the market to the tune of Rs.120,000 crore even as the government’s off-budget liabilities went up dramatically on account of oil and fertilizer bonds, farm loan waiver and under covering of liabilities as a result of the Sixth Pay Commission wage increases. On top of that the government’s declared fiscal deficit affected liquidity, Mr. Singh and Mr. Sinha said.
Mr. Shourie said the UPA had increased the CRR and the repo rate (rate at which banks lend money to each other) causing a liquidity crunch. “Instead of swatting the fly of inflation, the government used the monetary axe … instead of dealing with the supply side, it tightened money supply and raised interest rates hurt growth.”
The BJP leaders made some suggestions for the consideration of the government: cut the CRR to 5 per cent; cut repo rate and interest rates to stimulate growth; inject liquidity into mutual funds; reflect oil and fertilizer bonds on the budget; make working capital available to small and medium business enterprises; make sure farmers continue to get credit on kisan credit cards; and outlaw “naked short selling.”