Saturday, 7 April 2012

"Finance World" RBI asks states with weaker finances to raise cheaper funds

India’s central bank the Reserve Bank of India (RBI) has said the state governments with weaker financial position are able to borrow from the market due to the market perception that these borrowings are backed by the sovereign.

 Deputy Governor Subir Gokarn of the RBI said that there is a need to bring formal institutional fiscal discipline in the country to address the problem.”State government debt is apparently implicitly guaranteed by the sovereign. So, with or without a formal guarantee the market perceives that state debt has been fully backed,” said Gokarn.

 He pointed out that the states with a weaker financial position are not able to pay as much premium as compared to the states with higher premium. He was speaking at the 14th Annual Money and Finance Conference organised by the Indira Gandhi Institute of Development Research.

 He said that after clarity on separation and a no-bailout rule, the market will automatically start exerting pressure on the state governments to set their finances right in order or pay more to borrow. He added that this pressure acts as a discipline enforcer for the states.
Source:topnews..in

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