The current rupee exchange rate situation is different from past instances when the rupee depreciated, since the Reserve Bank of India (RBI), this time, has the wherewithal to make any intervention as and when it wants to, former RBI Governor Bimal Jalan has said.
Dr. Jalan was talking about how the central bank’s policy during his term as RBI Governor (1997-2003) had to contend with crises such as the Asian Crisis, and the balance of payments problems faced by India, and how the situation right now is different because of India’s strong foreign exchange reserves.
“At the moment, we are in a very different situation because we have large foreign exchange reserves,” Dr. Jalan said in an interview to The Hindu . “So, we have the ability and capacity today to decide what we want to do in terms of exchange rates, in terms of interventions, in terms of whatever we want to do. Capital flows are also high, we can finance the trade deficit. So, you can decide what is good for the country, what is good from a trade point of view, what is good from the growth point of view and then take a call.”
Handling NPAs
The former RBI Governor also said that the central bank must handle the public sector bank non-performing assets situation carefully so that credit flows meant for investment were not affected. He added that the government and the RBI had already taken some good steps in addressing the issue.
“There are several steps the government and RBI have taken, such as the prompt corrective action, the IBC. So, it’s not just about infusing money, but about changing the legal framework, which is very desirable,” Dr. Jalan said.
“Hopefully, if you take prompt corrective action, I hope NPAs will decline, but it will take a couple of years.”
“By decline, you don’t want to hit it hard,” he added. “You want to handle it gradually so that it doesn’t affect the credit flows to entrepreneurship, infrastructure, for whatever investment you want done. Credit flows are very important. You have the ability today to manage the system, and so all these measures taken so far are very good from that point of view.”
