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economy | IST

CEA, Raghuram Rajan's student, on foreign debt plan criticism: 'Arjuna did not lose respect for Dronacharya despite being in opposite camps'

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Former Reserve Bank chief Raghuram Rajan had said that the sovereign bond issue proposal has no real benefits and is loaded with risks.

Days after former Reserve Bank of India chief Raghuram Rajan had raised concerns about the government's foreign borrowing plan, his student and India's chief economic advisor, KV Subramanian, defended the plan, saying that it is an opportunity that comes once in a while.
Rajan had said that the sovereign bond issue proposal has no real benefits and is loaded with risks.
“In the Mahabharata, Arjuna and Dronacharya were in the opposite camps but that did not imply that Arjuna lost any respect for Dronacharya. In fact, he went to Dronacharya and sought his blessings before beginning the war. It is the same way," said Subramanian.
"Issues and academics can always have different points of view and that is the strength of academic debate. Some of the benefits that we have talked about are also some things that we need to be cognizant about especially because if you look at the way interest rate environment is and it is possibly an opportunity that comes once in a while,” he said.
"Rajan was instrumental in putting together the monetary policy framework as a result of which we have inflation at 4 percent. If we say that US inflation is 2 percent, if you look at the nominal currency depreciation, it is about the rate of inflation. The other point is there may be other collateral benefits that might come from the pricing that we get and thereby the implied sovereign rating that we have," Subramanian added.
On economic policy costs and benefits, he said, "We believe that the benefits actually outweigh the costs. But that is not to say that we are actually not cognizant of the cost. As long as we keep it well-managed, we can ensure that the benefits are substantially more than the costs."
With respect to mergers of the public sector banks, Subramanian said, “We exploit what economist says as economies of scale and that is the intent behind these mergers and rather than any top-down strategy saying that we should have 4 banks etc. This would be based on looking at banks that might combine very well because they have synergies,” he added.