USD is international currency so it has privileges. They can print money to absorb shocks of petroleum price rise and promote growth based on over consumption. Exporters get increased savings surplus and Current account surplus which leads to USD comes back to USA as foreign exchange reserves thus keeping real interest rates low. Alan Greenspans expansionary monetary policy caused USA lose comparative advantage to E.Asia during those times. There was a frantic search by USA financial institutions for higher returns domestically and outside
2. Growing NPAs in Banks: Efficacy of Ratings Accountability & Transparency of Credit Rating Agencies Slowdown in the economy is the major cause for rising NPAs. Rather than using Credit rating agencies rating, banks should strengthen their internal rating mechanism. Proactive steps that a bank can take is to stem the problem of increasing level of NPAs and stressed assets. Banks need to balance the use of external ratings, as the recent financial crisis has highlighted the dangers of over dependence on ratings. 3. Financial Inclusion: Which way forward? Quality of loan of financial institution depends on the health of non financial enterprise sector. Data gaps in the financial sector needs to be addressed for the purpose of monitoring. As we move along the path of stricter and more comprehensive regulation, it is important not to lose sight of the pricing mechanism, as determined by market forces. Competitive and transparent pricing of both deposit and loan products has become important to enhance social welfare. The global financial crisis has given a greater importance to financial regulation and emphasised on quality capital so as to safeguard financial stability.
4. Fighting inflation As prosperity has increased the demand for food, we have needed more food production (or imports). Higher agricultural commodity prices should have incentivized farmers to produce significantly more. Farmer earnings are being eaten away by higher costs, most important of which is wages. To limit the rise in rural wages, given that it has to rise relative to other wages to attract labour into agriculture, wages elsewhere should not rise as much. 5. Non-Banking Finance Companies: Game Changers NBFCs are already game changers for instance in micro finance, affordable housing, second hand vehicle finance, gold loans and infrastructure finance NBFCs are giving tough competitions to banks NBFCs can play a vital role going forward in financial inclusion for individuals and MSMEs Corporate governance stricture of NBFCs needs to be strengthened. NBFCs can become game changers by providing factoring and bill payment service which are important for financing working capital. 6. Why is Recent Food Inflation in India so Persistent? There is substantial wastage of agricultural produce like fruits and vegetables which needs to be minimized by improving the supply chain logistics and by setting up cold chains and processing facility at producing centers. There is need to modify APMC to exempt certain vegetables be kept out of the requirement of selling through mandi. Contract farming and leasing of farmland can help improve productivity by employing better technology Welfare benefits through a/c transfer would help in rationalizing food demand. High interest rate should not choke off supply augmentation plans.