Subbrao urges Govt to spend more on productive purposes

Highlighting the need for govt spending, RBI Gov D Subbarao said future generations should not pay the price for the high borrowing of present.

Mumbai: Highlighting the need for government spending on productive purposes, Reserve Bank Governor D Subbarao on Tuesday said future generations should not pay the price for the high borrowing of today.
"Government borrowing is not necessarily bad, but if the government borrows and consumes, that is bad," Subbarao said, addressing the AD Shroff memorial lecture here.
The government should rather focus on investing in productive sectors like infrastructure and ports, he said.

"If the government borrows and consumes that money, the pressure of spending is on us (and) the pain of repayment of that loan is on our children`s generation."
On the issue of reserve currencies, he hinted at the US dollar continuing to hold the dominant position, stating the euro has "failed" to live up to the expectations.

Subbarao called upon emerging market economies like India to build greater currency chests for stability.

Speaking on global imbalances, he said the imbalances today do not arise from China as was the case in the days leading up to the 2008 crisis, but from oil exporting nations like Russia.

The RBI chief reiterated the need to change the structure of the IMF, which he said, reflects the economic realities of the 1960s.

He said there was a request by India to start a dollar swap facility with the US, but Washington had reservations as our capital account is not fully convertible.

India made the request during the visit of US Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke here last month, Subbarao said, adding America is yet to convey a final decision on the matter.


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