Dear Banking Aspirants,

THE HINDU EDITORIAL – November 9, 2018, is one of the must-read section for the competitive exams like  IBPS Clerk 2018, Indian Bank PO & LIC HFL 2018. These topics are widely expected to be asked in the reading comprehension, Cloze Test or Error Detection in the forthcoming exams. So gear up your Exam preparation and learn new words daily.

A) Political economics: credit stimulus for MSMEs

The credit stimulus for MSMEs could have some unintended consequences

In the run-up to the general election next year, the Centre has announced an important credit stimulus package for micro, small, and medium enterprises (MSMEs). Among the many sops doled out under the new scheme, Prime Minister Narendra Modi has promised the sanction of business loans of up to ₹1 crore within a time frame of 59 minutes, in order to encourage faster credit flow to MSMEs. These companies will also receive an interest subvention of 2% under the scheme and support from public sector units, which will now be mandated to make at least 25% of their overall purchases from MSMEs. It is worth noting that MSMEs, which account for 30% of India’s gross domestic product (GDP), were hit hard by the twin shocks of demonetisation and the implementation of the Goods and Services Tax over the last couple of years. Further, in the aftermath of the IL&FS crisis, which has affected the amount of lending done by non-banking financial companies to the MSME sector, the government would be looking at the scheme as a tool to improve credit flow and the pace of job creation in the economy. A study by officials of the Reserve Bank of India in August 2018, however, showed that growth in credit flow to MSMEs had recovered to pre-demonetisation levels by the April-June quarter, just before the liquidity crisis.

The scheme has signs of state-led economic planning written all over it. The biggest risk of a credit stimulus is the misallocation of productive economic resources. Pumping extra credit into MSMEs now may well lead to a temporary boom and enable a feel-good atmosphere in the run-up to elections, but it can lead to a painful bust when the stimulus ends some day. Another unintended consequence is the likely deterioration in credit standards as financial institutions are pushed to lend aggressively to MSMEs. Efforts to expedite business loan approvals may be welcome from the point of view of growth and job creation, but they rarely end well when motivated by political reasons. Conceptually, the Prime Minister’s latest credit scheme is no different from the MUDRA loan scheme, which has been troubled by soaring bad loans. In September, former RBI Governor Raghuram Rajan had warned that loans extended under the MUDRA scheme could turn out to be the source of the next financial crisis. Care needs to be taken to see that the new MSME loan scheme does not pose a similar risk in the future. Also, the demand that PSUs must procure a quarter of their inputs from MSMEs could breed further inefficiency in the economy. In all, the MSME loan scheme is yet another example of how bad economics can make for good politics.

B) Independence and accountability: on RBI

As the RBI’s autonomy is debated, it needs to revisit its exclusive focus on inflation-targeting

Far from achieving a desirable ‘monetary-fiscal coordination’ in India today, the Reserve Bank of India (RBI) and the government give the impression that they are not on the same page even as far as an understanding of their roles is concerned. This may be seen in statements by them on websites, Twitter and in the old-fashioned mode of the public lecture given by the Finance Minister and a Deputy Governor of the RBI, respectively. The RBI suggests that its independence is being violated while the government rationalises its intervention in terms of its concern for the economy. How do we make sense of these positions?

Defining autonomy

Even at the time when the idea of central bank independence began to germinate some two decades ago, this was understood to mean a ‘functional’ independence. That is, the bank would be unconstrained by the government in its functioning, which includes both the instruments it uses and how it uses them. However, its autonomy was not to extend to ‘goal’ independence. What the goals of the central bank should be were to be chosen by the government without reference to the bank. The main issue here was whether the bank should focus on inflation alone or also on the level of employment. Within a decade of this debate, it had been conceded that the focus would be exclusively on the former, and monetary policy came to be identified with ‘inflation targeting’.

Two points may be mentioned in this context. First, the discourse was solely among interlocutors from Western democracies, ensuring the issues were those related to their economies. Second, even as the major central banks of the world shifted to inflation targeting, in yet another example of American exceptionalism, the U.S. did not revise the goals of the Federal Reserve. It was to continue focus on maximising employment while keeping prices stable, a sensible recognition of a possible trade-off between these goals. In India where for close to a quarter century political parties of all hues appear to suggest ‘what is good for America is the best for India’, this has been missed. In 2015 the RBI was by law, in line with a “modern monetary policy”, expected to target inflation. It was to remain the banking regulator though.

Once we are aware of how central bank independence was first sought to be understood and of the agreement between the RBI and the Government of India in 2015, it is not difficult to separate the grain from the husk in the public spat between the two playing out in the media. The issues of contention happen to be the corrective action to be taken for stressed banks, the prudential norms to be adopted by financial institutions, the easing of liquidity and the sharing of the surplus generated by the RBI. Here, barring the last, all others are in the RBI’s bailiwick so to speak. On the other hand, on the sharing of the surplus, it is understood that the Government of India legally is the owner of the surplus generated by the country’s public institutions. Even under this architecture, though, all care must be taken to ensure that the central bank’s reserves are of a level commensurate with the extent of the financial sector and the potential degree of systemic risk from its malfunctioning, which can vary. So, we can’t go just by formulae here.

Apart from the issue of sharing the surplus, the RBI should be left alone by the government to decide on the right course of action. This derives not so much from a notion of central bank independence as it does from the point of view of a credible governance policy. The Government of India would have chosen the Governor, participated in the choice of his deputies and had a say in the appointment of even the independent members of the central board of the RBI. In addition, the board has representatives of the government on it. It should now be left to this body to decide on the precise corrective action for banks with high NPAs, the desirable state of liquidity and the prudential norms to be observed by banks. The RBI is the banking regulator after all, and for the government to attempt to direct it would constitute micro-management.

Stability of the economy

Stepping away from legal niceties, there is reason to believe that some of the actions being sought to be imposed on the RBI today could jeopardise the stability of the economy. While acting as the lender of last resort can be stabilising, under no circumstances would it be advisable to lower prudential norms in the presence of stressed banks. The government’s concern for the health of the medium and small enterprises is well-founded. After all, they were among the most affected sections following the demonetisation of 2016. If, in the spirit of contriteness as it were, the government wants to reach out to them, the right course would be to provide interest rate subvention, rather than to force the RBI to tweak its lending norms. There is a severe lack of judgment in loan melas promising online sanction in less than an hour. There is the suggestion in this of the political business cycle, a government trying to nudge the economy prior to an election. The resistance of the RBI top brass to this desperate action is understandable.

Whatever may be the misfeasance of the government in its recent dealings with the RBI, however, it would yet be acceptable to review its own performance in the sphere in which it has an untrammelled independence, namely monetary policy. Under this arrangement it has control over the interest rate. Over 2013-2018 there has been a 5 percentage point swing in the real interest rate in India, moving from a negative to a positive level, making it among the highest in the world, much higher than that of China. This is clearly the consequence of an exclusive policy focus on inflation from even before inflation targeting was formally adopted by Parliament in India. It may well have contributed to slow industrial and export growth, due to a real appreciation of the rupee, and a rise in NPAs even after their existence had been recognised. If this is the monetary policy that central bank independence brings with it, we might just be a little sceptical of the value of the independence itself.

Enabling job creation

There is a certain populism inherent in privileging inflation control to justify extraordinarily high interest rates. While it would be bad economics to tolerate high inflation, the absence of inflation by itself only benefits those in employment, it does not assure jobs to the unemployed. Thus a monetary policy that ignores the impact of its actions on unemployment is not credible. Interestingly, the government and the RBI have always been on the same page as far as inflation targeting is concerned. The populist message that inflation erodes the income of the poor conceals the possibility that in the implementation such a policy could hold back job creation by restricting investment. The rising current account deficit, the slow growth of employment and the disappointing performance of manufacturing, the sector most closely affected by high interest rates, should prompt us to review how monetary policy is conducted in India. In the past, the RBI had a ‘multiple indicators approach’ which paid attention to inflation, growth and the current account. This may not have borne the precision conveyed by ‘inflation targeting’ but it did answer to Keynes’s dictum, “It is better to be vaguely right than to be precisely wrong.”


1) stimulus

Meaning : a thing or event that evokes a specific functional reaction in an organ or tissue.(n)

Tamil Meaning : ஊக்க

Synonyms : impetus , incentive

Antonyms : block

Example : “areas of the brain which respond to auditory stimuli”

2) sops

Meaning : a thing of no great value given or done as a concession to appease someone whose main concerns or demands are not being met.(n), soak up liquid using an absorbent substance(v).

Tamil Meaning : சலுகை

Synonyms : absorb , bribe

Antonyms : dry

Example : “my agent telephones as a sop but never finds me work”

3) doled

Meaning : distribute shares of something(v).

Synonyms : distribute

Antonyms : crave

Example : “the scanty portions of food doled out to them”

4) subvention

Meaning : a grant of money, especially from a government.(n)

Tamil Meaning : மானியத்திற்கு

Synonyms : grant

Antonyms : baffle

Example : “Ottawa has begun to cut federal subventions to the provinces”

5) mandated

Meaning : an official order or commission to do something(n).

Tamil Meaning : ஆணை

Synonyms : order

Antonyms : denial

Example : “a mandate to seek the release of political prisoners”

6) noting

Meaning : notice or pay particular attention to (something).(v)

Tamil Meaning : குறிப்பிட்டார்

Synonyms : perceiving

Antonyms : misperceiving

Example : “he noted his mother’s unusual gaiety”

7) Dictum

Meaning : a formal pronouncement from an authoritative source(n).

Tamil Meaning : கருத்து

Synonyms : precept

Antonyms : request

Example : “the dicta of High Court Judges”

8) unintended

Meaning : not planned or meant(adj).

Tamil Meaning : திட்டமிடப்படாத

Synonyms : accidental

Antonyms : intended

Example : “the unintended consequences of people’s actions”

9) deterioration

Meaning : the process of becoming progressively worse(n).

Tamil Meaning : மோசமடைவது

Synonyms : decline

Antonyms : rehabilitation

Example : “a deterioration in the condition of the patient”

10) aggressively

Meaning : ready or likely to attack or confront; characterized by or resulting from aggression(adj).

Tamil Meaning : ஆக்கிரமிப்பு

Synonyms : hostile

Antonyms : peaceful

Example : “he’s very uncooperative and aggressive”

11) expedite

Meaning : make (an action or process) happen sooner or be accomplished more quickly.(v)

Tamil Meaning : துரிதப்படுத்த

Synonyms : hasten

Antonyms : halt

Example : “he promised to expedite economic reforms”

12) soaring

Meaning : fly or rise high in the air(v).

Tamil Meaning : உயரும்

Synonyms : lofty

Antonyms : misfortunate

Example : “the bird spread its wings and soared into the air”

13) procure

Meaning : obtain (something), especially with care or effort(V).

Tamil Meaning : கொள்முதல்

Synonyms : obtain

Antonyms : abandon

Example : “food procured for the rebels”

14) concerned

Meaning : relate to; be about(v),a matter of interest or importance to someone.(n).

Tamil Meaning : அக்கறை

Synonyms : worried

Antonyms : casual

Example : “the story concerns a friend of mine”

15) rationalises

Meaning : attempt to explain or justify (behaviour or an attitude) with logical reasons, even if these are not appropriate(v).

Tamil Meaning : பகுத்தறிய

Synonyms : justify

Antonyms : accuse

Example : “she couldn’t rationalize her urge to return to the cottage”

16) intervention

Meaning : the action or process of intervening.

Tamil Meaning : தலையீடு

Synonyms : interference

Antonyms : challenge

Example : “a high degree of state intervention in the economy”

17) germinate

Meaning : come into existence and develop.(v)

Tamil Meaning : தளிர்

Synonyms : sprout

Antonyms : halt

Example : “the idea germinated and slowly grew into an obsession”

18) constrain

Meaning : compel or force (someone) to follow a particular course of action.(V)

Tamil Meaning : கட்டுப்படுத்தும்

Synonyms : compel

Antonyms : release

Example : “children are constrained to work in the way the book dictates”

19) conceded

Meaning : admit or agree that something is true after first denying or resisting it(v).

Tamil Meaning : ஏற்றுக் கொண்டு

Synonyms : allow

Antonyms : deny

Example : “I had to concede that I’d overreacted”

20) interlocutors

Meaning : a person who takes part in a dialogue or conversation.

Tamil Meaning : இடைத்தரகர்களுக்கு

Synonyms : speakers

21) recognition

Meaning : identification of a thing or person from previous encounters or knowledge(n).

Tamil Meaning : அங்கீகாரம்

Synonyms : gratitude

Antonyms : blame

Example : “she saw him pass by without a sign of recognition”

22) revise

Meaning : reconsider and alter (something) in the light of further evidence(v).

Tamil Meaning : திருத்தியமைக்கிற

Synonyms : correct

Antonyms : retain

Example : “he had cause to revise his opinion a moment after expressing it”

23) hues

Meaning : a colour or shade(n).

Tamil Meaning : சாயல்

Synonyms : tints

Example : “the water is the deepest hue of aquamarine”

24) though

Meaning : however (indicating that a factor qualifies or imposes restrictions on what was said previously)(adv).

Tamil Meaning : என்றாலும்

Synonyms : nevertheless

Example : “I was hunting for work. Jobs were scarce though”

25) husk

Meaning : the dry outer covering of some fruits or seeds(n).

Synonyms : shuck

Antonyms : core

Example : “the fibrous husk of the coconut”

26) spat

Meaning : eject saliva forcibly from one’s mouth, sometimes as a gesture of contempt or anger(v).

Tamil Meaning : சண்டை

Synonyms : squabble

Antonyms : agreement

Example : “Todd spat in Hugh’s face”

27) contention

Meaning : heated disagreement.(n)

Tamil Meaning : கருத்து

Synonyms : conflict

Antonyms : affection

Example : “the captured territory was the main area of contention between the two countries”

28) prudential

Meaning : involving or showing care and forethought, especially in business.(adj)

Tamil Meaning : விவேக

Synonyms : circumspect

Antonyms : misconsidered

Example : “the US prudential rules prevented banks from lending more than fifteen per cent of their capital to any one borrower”

29) surplus

Meaning : an amount of something left over when requirements have been met; an excess of production or supply(n).

Tamil Meaning : உபரி

Synonyms : excess

Antonyms : need

Example : “exports of food surpluses”

30) commensurate

Meaning : corresponding in size or degree; in proportion(adj).

Tamil Meaning : ஈடான

Synonyms : equivalent

Antonyms : inadequate

Example : “salary will be commensurate with age and experience”

31) precise

Meaning : marked by exactness and accuracy of expression or detail(adj).

Tamil Meaning : துல்லியமான

Synonyms : exact

Antonyms : inaccurate

Example : “precise directions”

32) vaguely

Meaning : in a way that is uncertain, indefinite or unclear; roughly(adv).

Tamil Meaning : தெளிவற்ற

Synonyms : unclearly

Antonyms : precisely

Example : “he vaguely remembered talking to her once”

33) subvention

Meaning : a grant of money, especially from a government.

Tamil Meaning : மானியத்திற்கு

Synonyms : grant

Antonyms : cripple

Example : “Ottawa has begun to cut federal subventions to the provinces”

34) nudge

Meaning : prod (someone) gently with one’s elbow in order to attract attention.(v),a light touch or push.(n)

Tamil Meaning : தூண்டல்

Synonyms : push

Antonyms : pull

Example : “people were nudging each other and pointing at me”

35) desperate

Meaning : feeling or showing a hopeless sense that a situation is so bad as to be impossible to deal with.

Tamil Meaning :

Synonyms : hopeless

Antonyms : hopeful

Example : “a desperate sadness enveloped Ruth”

36) misfeasance

Meaning : a transgression, especially the wrongful exercise of lawful authority.(n)

Synonyms : crime

Example : . It is a form of holding administrative subjects responsible for their misfeasance to compel administrative subjects to perform legal duties.

37) untrammelled

Meaning : not deprived of freedom of action or expression; not restricted or hampered.(adj)

Tamil Meaning : தடையற்ற

Synonyms : free

Antonyms : limited

Example : “a mind untrammelled by convention”

38) sceptical

Meaning : not easily convinced; having doubts or reservations(adj).

Tamil Meaning : சந்தேகம்

Synonyms : doubting

Antonyms : desirous

Example : “the public were deeply sceptical about some of the proposals”

39) erodes

Meaning : (of wind, water, or other natural agents) gradually wear away (soil, rock, or land)(v).

Synonyms : wears

Antonyms : fixes

Example : “the cliffs on this coast have been eroded by the sea”

40) conceals

Meaning : not allow to be seen; hide(v).

Tamil Meaning : மறைக்கவோ

Synonyms : disguises

Antonyms : acquaints

Example : “a line of sand dunes concealed the distant sea”


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