The government’s mandate and responsibility to control the States’ fiscal deficit means that it has the power to control their finances even at a time of large-scale loan waivers by a number of states, 14th Finance Commission Secretary A.N. Jha said on Tuesday.
Mr. Jha was speaking at the unveiling of former RBI Governor Y.V. Reddy’s book, at which Mr. Reddy said that giving the States more fiscal powers actually brought a greater element of control. Speaking about the prospect of public sector bank mergers, Mr Reddy said: “If the inherent problem in banks is poor governance, then this will not be fixed by merging two poorly governed banks. If you merge a strong bank with a weak one, there is no guarantee the strong one will win out. So, it is not a sound general policy to be followed.” “The Government of India has the responsibility and mandate of controlling the fiscal deficit,” Mr.Jha said. “If states waive off farmers loans, the finances will have to come from somewhere else. The Finance Ministry can take steps to control it.”
“By giving more powers to the States, you are actually with more powers.” Mr. Reddy said. “There is somebody (the Centre) to check the states, but if loan waivers were to be done by the Centre, then there is nobody to check the Centre.”
Speaking about the relations of the RBI with the Centre, former Governor Bimal Jalan said that the most important issue to consider in the context is that the responsibility of what happens in the economy is with the government, which has to answer to the Parliament and the public. The RBI’s role, on the other hand, is a job with certain benchmarks.
“However, the dialogue between the two is of utmost importance,” Mr.Jalan said.
