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Indian economy: To achieve sustained double digit growth and $10Tn economy, we need not look any further than Japan, in a post WW2 era, where sustained, decades long monetary policy of CREDIT GUIDANCE led the country from total destruction to the world’s 2nd largest economy. 1/n
How can India achieve the same level of spectacular growth in the next years/decades? RBI is the key player. RBI must buy back all NPAs from BS of banks and increase its own BS. This will clean up the BS of the banks and encourage lending, leading to economic development. 2/n
Recapitalization from the government puts a strain on the already precarious state finances and puts unnecessary burden on the tax payer and should therefore be avoided. 3/n
Lending should be targeted & prioritized. RBI must provide Credit Guidance to lend to productive industries, create 10s of thousands of HIDDEN CHAMPIONS, creating market leaders nationally & internationally, creating high paying employment opportunities for Indians. 4/n
What are the risks of RBI cleaning up balance sheets of banks? 5/n
Inflation? No, because money is not pumped into the real economy. RBI only buys assets at par value from the banks, thereby freeing capital to be lent. There is no money pumped into the real economy, hence there is no reason for inflation. 6/n
Asset Bubble? RBI credit guidance & controlling amount of credit, asset bubbles can be avoided. Focus should be on lending into productive, employment generating sectors. Lending into Real Estate, Fin Assets & consumption should be tightly monitored, avoiding risk of bubbles. 7/n
RBI balance Sheet? There is no cap on size of the RBI BS. In recent weeks, US FED, ECB, BOJ and other central banks have increased their balance sheet substantially. In comparison, RBI’s balance sheet is much smaller and therefore, has room for manoeuvre. 8/n
Over the course of the week, I will provide data from RBI’s latest annual report and further analysis on Credit Growth. Stay tuned! @narendramodi @nsitharaman @DasShaktikanta @muglikar_ @harshmadhusudan @anuraag_saxena @centerofright @iAsura_ @karanbhasin95 @Infra_VinayakCh
