States Important Stakeholders in Inflation Management: RBI Governor addresses Finance Secretaries

States are important stakeholders in inflation management as their contribution is important in addressing the supply side constraints. They could, for instance, help better management of public distribution system, improve productivity in agriculture and allied activities, reform the Agriculture Produce Marketing Committee (APMC) Acts and improve the infrastructure, such as, storage facilities, Dr. D. Subbarao, Governor, Reserve Bank of India, told the State Finance Secretaries today while inaugurating a conference held in Mumbai.

The 24th Conference of the State Finance Secretaries was held in the Reserve Bank of India at Mumbai today. Finance Secretaries of 18 States participated. Dr. D.Subbarao, Governor, Reserve Bank of India inaugurated the Conference.  Smt. Sudha Pillai, Member Secretary, Planning Commission; Shri R. Gopalan, Secretary (Economic Affairs); Shri Sumit Bose, Secretary (Disinvestment) and Officer on Special Duty (Expenditure); Dr. Kaushik Basu, Chief Economic Adviser; Shri C.R.Sundaramurti, Controller General of Accounts (CGA); and Smt. Shyamala Gopinath, Dr. Subir Gokarn and Shri Anand Sinha, Deputy Governors and other senior officials of the Ministry of Finance, Comptroller and Auditor General of India (CAG) and the Reserve Bank attended the Conference.

The Governor in his inaugural remarks referred to the market borrowings of the States and emphasised that there was a need to improve efficiency in terms of better planning, robust cash management and adherence to the Fiscal Responsibility Legislation (FRL). Besides improving revenue collections through tax reforms, the States should also focus on expenditure management, he said.

He referred to implementation of Malegam Committee Report in the context of regulating micro finance institutions (MFIs) and said that going forward, the unincorporated MFIs would be regulated by the proposed central legislation uniformly across the states and the incorporated MFIs by the Reserve Bank. This was necessary to avoid regulatory arbitrage, he added.  The Governor also emphasised the need to improve the effectiveness of the State Level Bankers Committee (SLBC) and stated that one of the important items on its agenda should be financial inclusion and financial literacy. Here, the attempt should be to move from a target driven approach to more meaningful financial inclusion. He urged the State Governments to play a proactive role in the field of financial literacy and financial inclusion in collaboration with the Reserve Bank, Central Government and the banks. He also underlined that the State Governments should caution the public against entities that raise funds from gullible public through dubious schemes.

Other issues discussed in today’s deliberations were management of cash balances and market borrowings of the State Governments for 2011-12, repayment / exchange rate risk in States’ borrowing and building of sinking funds to meet these obligations, risks to State finances on account of power sector utilities, issues concerning regulation of MFIs, financial inclusion through business correspondents, roadmap for regulation of State Government owned NBFCs, switch over to electronic mode of payment and receipt for Government’s banking business and proposed classification structure of Union and State Governments’ accounts.

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