R B I s Hostage to Fortune

What is happening right in front of our eyes is like a scene out of a Greek tragedy, of the Chorus foretelling doom but unable to avert it. This was what President Radha- krishnan had remarked a few weeks ago. Subsequent weeks have heightened the tempo of what he had then seen coming. The promised amendment of the Gold Control Rules permitting the making of gold ornaments of any purity in a gazette notification, opening wide the floodgates for smuggled gold and the THE CREDIT POLICY announced for the busy season of 1966-67 has not come as a surprise. Soon after devaluation, in the phase when follow- up measures were much in the air, the Governor of the Reserve Bank had made it known at meetings with bankers that with the expectation of a normal crop and liberalised imports, credit expansion in the busy season of 1966-67 would be substantial, amounting to between Rs 600 and 650 crores, and that the Reserve Bank's policy would be geared to meet this order of credit requirements. In fact, the slack seasonal policy, with a request to banks to conserve their funds from deposit expansion and credit contraction by investment in Treasury Bills, was explained as being aimed at putting the banks in a position to expand credit for what has come to be loosely called "productive requirements" and for financing essential imports and exports. The banks were told that if they did so, the Reserve Bank would not be found wanting in making up the gap in their resources by providing cheaper refinance. In fact the Governor was believed to have assured further that nearly all of it would be at the Bank Rate provided the banks themselves put the larger part of their funds in the financing of priority sectors, now defined to cover all industry and External trade. The Reserve Bank at the meetings with the bankers in the early part of the slack season allayed fears expressed by them regarding the impact of devaluation on the growth of deposits and return of credits. In the event, the figures indicated by the Reserve Bank regarding the magnitude of growth of deposits seem to have been pretty close and the performance of the bankers in putting these funds drain of Rs 100 crores or more of foreign exchange every year; Andhra on fire to force its claim for the next steel plant; and, finally, the Executive Committee of the Congress Parliamentary Party unanimously deciding on a ban on cow slaughter with the blessings of Indira Gandhi. Give people what they want; do not ask who is wanting, and what for; and aboveall, do not resist. The Government may as well fold up. Pending elections, any way, Delhi has abdicated.