A Blueprint for Central Banking and Public Finance Reform in India

Introduction: India’s economic resilience demands bold, decisive reforms in central banking and public finance. These measures aim to reduce interest burdens, strengthen the rupee, and drive long-term growth while safeguarding national sovereignty. 1. Converting Dated Securities into Treasury Bills The Reserve Bank of India (RBI), in consultation with the Ministry of Economic Affairs, can invoke exceptional provisions to: – Convert the RBI’s holdings of dated central government securities into short-term Treasury Bills (7–364 days) at a rate of ₹1.25 lakh crores per week, bypassing primary dealers and markets through a one-time arrangement. – Proposed Interest Rates for Treasury Bills: 2.52% for 364 Days 1.62% for 182 Days 0.99% for 91 Days 0.45% for 46 Days 0.23% for 7–14 Days Impact: This conversion would significantly reduce the government’s interest outgo while offering flexibility in Open Market Operations (OMOs). 2. Why This Reform is Urgent This proposal arises due to: – A drop in the Wholesale Price Index (WPI) and the risk of deflation over the next six months. – Geopolitical tensions at India’s borders. – The need to safeguard the Indian Rupee from external pressures. – India’s foreign currency repayment obligations of ₹6,18,295.76 crores. Goal: A calibrated approach will reduce the revenue deficit and allow savings to be redirected toward capital expenditure and development. 3. A Treasury Bill-Centric OMO Framework Once securities are converted, the RBI should: – Conduct OMOs exclusively in Treasury Bills, not dated securities – Offer buy/sell operations at state capitals between 10 a.m. and 4 p.m. – Conduct special OMO sessions for primary dealers and commercial banks between 4 p.m. and 5 p.m. – Fix a single OMO rate to create a simplified market structure. 4. Benefits to Savers and Markets – Savers will continue to earn 8.8–9% returns from safe instruments. – The government saves massively on interest outgo, both in the current and future years. – Domestic savings strengthen the rupee and support India’s 15-year growth plan (till 2040) for infrastructure and housing. 5. Reforming Fixed Deposit Policies To align with RBI’s monetary policy – No fixed deposit should exceed 364 days or offer rates above the announced Bank Rate. – All fixed deposits to be treated as unsecured deposits. – Single deposits above ₹100 crores from any entity should not be accepted. Shift to Securities:Large depositors should be encouraged to use Demat or Securities Ledger Accounts (SGLs) and invest in central or state government securities for better risk management and transparency. 6. Deep Discount Bonds A Game-Changer – To mobilize long-term capital: – The RBI should allow commercial banks to issue deep discount bonds (DDBs) — not coupon-bearing bonds — up to ₹15 lakh crores. – Rate discovery will occur via daily auctions with primary dealers. – Bonds should be listed on domestic markets (e.g., GIFT City) and overseas platforms to encourage rupee-based transactions. – These bonds should be included in RBI’s OMO framework to enhance liquidity. 7. Moving Away from ECBs – Ban External Commercial Borrowings (ECBs) in their current form for banks and financial institutions. – Encourage corporates to raise funds via rupee-denominated DDBs instead. – Use RBI liquidity to retire ECBs early, cutting foreign currency outflows and keeping profits and taxes within India. 8. Creating Long-Term Investment Banks The RBI should foster at least nine dedicated investment banks, each with ₹90,000 crores in equity. – These banks could leverage 4x their equity (₹3.6 lakh crores) to fund credible infrastructure and commercial projects. – This would unlock ₹27 lakh crores for physical asset creation, boosting GDP growth to 8–9.2%. Job Creation: Approximately 2.75 crore jobs will be generated across all sectors and age groups (19–70 years). 9. Broader Economic Impact – Lending rates (5–25 years) will stabilize between 7.8–9.9%, reducing NPAs caused by high-interest loans. – India’s efficiency rankings (WEF) will improve. – Agriculture, manufacturing, and services will experience a surge in productivity and competitiveness. 10. Key Takeaways – Fixed Deposit policies need urgent reform. – Multilateral debts must be repaid strategically. – ECBs must be replaced with rupee loans. – Deep Discount Bonds and OMOs must form the backbone of market liquidity. – Long-term investment banks should fund infrastructure growth. CONCLUSION With these strategic reforms spanning – Treasury Bill conversions, bond markets, and investment banks – India can secure fiscal stability, empower domestic savings, and unlock a decade of rapid, inclusive growth. The above suggestions were sent to the RBI and various other dignitaries on 5th June 2025
Posted by G Giridhar Prabhu

BRIDGE THE GULF – The Mangalore Connection

The UAE Dirham is a pegged currency. For around 40 years, it has maintained a fixed rate with the US Dollar. Doing so saves transaction time and aligns with the world’s most convertible currency. Newspaper headlines or commentators discussing foreign exchange fluctuations as being “strong” or “weak” hold little significance in the UAE. This results in economic efficiency. Fundamentally, a currency fluctuates. It is neither strong nor weak in itself. Strength or weakness lies in the economy, which means the future supply and demand of that currency compared to its paired currency. Dubai is the center of attraction for social, economic, and political purposes, while Abu Dhabi, as the national capital, maintains very good relationships with all the nations of the world. It is therefore important that India, as a trading partner of the UAE, also connects the Rupee to the UAE Dirham by adopting what is known as capital account convertibility. When one says the euro is weaker, it could mean that the Dollar is stronger, while in reality, the euro is either depreciating or appreciating against other paired currencies. It is the best option for India to pair itself with the UAE Dirham as a currency of reckoning. The proximity to financial markets is one of the most important economic links, which creates social links. The fact that the UAE is part of the GCC will make convertibility in terms of the Dirham easier with other currencies of the region, especially those facing turmoil, dictatorship, or similar situations, collectively referred to as the MENA region. The MENA region stands for the Middle East and North Africa. Capital account convertibility in India has proceeded with caution as the nominal and real interest rates of India are higher than those of global economies. Indians have lived with inflation for so long, since the 1960s, that any sudden influx of foreign currency could disturb the monetary as well as the capital situation in India. The Government of India and the Reserve Bank of India have been very cautious about capital account convertibility, as it can attract huge capital flows within a few days or months, potentially disrupting the Indian economy and its enterprises. The prosperity that comes from a nation’s growth has to benefit the bottom of the pyramid. Immigrants from all parts of India are in the UAE and further abroad. Therefore, transportation services and the ability of nations to coordinate the social effects of migration are all very important in fostering love for the nation. The respect for both employer and employee as contributors to the region is also a major social factor. In the growth of the Indian economy, during the initial phases of rising oil incomes, Arabs used to visit India to enjoy the monsoon rains of Mumbai. The attraction of India for tourism by any Emirate or Sheikdom is also strengthened by diplomatic relationships. The UAE is a major exporter of natural gas and oil to India, and the level of cooperation is very high in economic, social, and political spheres. The convertibility of Dirham to Rupee could also be engineered with the digital Rupee. India can swap digital Rupees with the UAE Dirham floating currency and encourage UAE Dirham deposits in India with commercial banks as well as the Reserve Bank of India. As a first step, ₹1,00,000 crores can be invested by India and deposited with the UAE Central Bank. Similarly, ₹1,00,000 crores can be purchased by the UAE Central Bank and then deposited within itself. Mutually, half the amount would be counted as foreign exchange reserves by the Government of India as well as the Reserve Bank of India. For the UAE, it becomes a convertible Rupee for transactions between the two nations. The Indian Government and the Reserve Bank of India can encourage oil companies to buy Dirham from commercial banks, which, on a daily basis, the Reserve Bank can offer for transactions. Therefore, a vibrant capital market would be initiated, but there would be no forex market fluctuations, as the rate would be stable. If the Abu Dhabi National Oil Company invoices in Dirhams or in Indian Rupees, it will have the benefit of fluctuations in the Indian Rupee by keeping Rupee deposits that are repatriable in Dirhams, and in the treasury bill market, which is discounted to the market. Therefore, the Reserve Bank of India can convert all its current holdings of government securities into 42-day, 181-day, 182-day, and 364-day treasury bills equivalent to the US Dollar treasury bill rates, but also into equivalent rates of the Euro, Japanese Yen, Singapore Dollar, Hong Kong Dollar, and Korean Won. This would result in a vibrant forex market. This can also be extended to South Asian currencies, where the Reserve Bank of India can have swaps with these currencies, each to the equivalent of ₹25,000 crores, and a vibrant South Asian currency market can operate in Colombo, which can become the economic center for the SAARC region. This will help the island nation foster social, economic, and political cooperation by improving lives through a services economy. The Government of India and the Reserve Bank of India have recognized that India is a major merchandise importer, and an important measuring tool is the number of months equivalent of reserves. Overall, the UAE Dirham and Rupee market will become a convertible currency for South Asian currencies if there is a spot and forward market in Colombo, in the GIFT financial centre, and in selected financial centers of India. It is suggested that, since Mangalore has been a very important commercial banking and trading centre for the last 23 centuries with strong cultural, social, and economic relationships with the UAE, a large Indian diaspora, and all the ingredients for connections, the Reserve Bank of India and the Government can make Mangalore an exclusive center for the conversion and capital account convertibility process. All commercial banks operating in Mangalore can be authorized for convertibility of the current account, for the savings of the people of India in the UAE, under digital banking, and also for the Abu Dhabi National Oil Company to keep its reserves in Dirhams and Rupees in India, connecting it to the various requirements of the South Asian economy, especially Sri Lanka. It would be the most convenient location as the Mangalore SEZ can also host commercial banking services within itself as an operating center, and interrelate itself with Sri Lanka, Singapore, Dubai, Gandhinagar GIFT, and Mumbai, all within convenient distances. A services economy of shipping as well as air transport between the UAE and India is also very convenient at the Mangalore International Airport. In the neighbourhood, the storage of crude oil can be supported with Dirham-Rupee conversions, where Indians can be offered parcels of crude oil to trade in the forward and futures market by creating the Mangalore-Abu Dhabi crude futures based on crude forwards. This would also develop the product market in Mangalore as a port of delivery and storage for petroleum products in the future. Ethanol-blended petrol and diesel will be a key supply factor in the Indian market. Therefore, investments in blending ethanol with petrol products have tremendous potential in North Karnataka, which is a major sugarcane-producing region and can channel investments of up to ₹10,000 to ₹20,000 crores in blending facilities, tankage, product development, and resource conservation. The UAE Dirham–Indian Rupee digital conversion is waiting to happen and can be implemented in the shortest time. Hosting over 20,000 software professionals and the capacity to house an additional 10,000 service professionals in Mangalore, from the UAE, the MENA region, Sri Lanka, Japan, and other countries, the region can also take advantage of healthcare and medical facilities to develop into a world-class medical center. Additionally, it will ensure that currency is convertible at any point—365 days, 24 hours—from UAE Dirham to the digital Rupee. The stability provided by the political relationship will go a long way in developing social dynamics in economic relations for the rest of India, where sustainability as well as human development goals will be actively promoted, making Mangalore a city of excellence—New Mangalore. – While GIFT will be India’s international finance centre, over 18 smaller centres can be developed for both talent and knowledge. – The Government of India must encourage Rupee schemes in India for exporters and nations with trade surpluses. – Indian banks must be encouraged to hold balances in all G20 currencies along with official reserves. This will widen, broaden, and deepen the forex market. G. Giridhar Prabhu 01-01-2023
Posted by G Giridhar Prabhu

A Vision for Growth in Indian Agriculture -Empowering Farmers for the Next 40 Million Metric Tonnes

Introduction Agriculture remains the backbone of India’s economy, yet it faces challenges of productivity, market access, and sustainability. To achieve the next 40 million metric tonnes of agricultural output, we need a collaborative, market-driven, and farmer-centric approach. This blog outlines a practical roadmap leveraging existing frameworks like Farmer Producer Organisations (FPOs), corporate participation, and rural infrastructure strengthening – without excessive reliance on government subsidies. Strengthening Farmer Producer Organisations (FPOs) Key Proposals: Mandate FPOs under the Companies Act to facilitate inter-state trade and formalize farmer collectives. Encourage crop-specific FPOs (e.g., potato farmers across Himachal, Maharashtra, West Bengal, Tamil Nadu). Three-Pillar Framework for FPOs: Education (skill development, best practices) Organization (structured governance) Discipline (efficient supply chains) Role of Fertilizer Companies: Authorize them as Producer Procurers for MSP-based farmgate purchases. Transportation responsibility from farms to markets. Issue 8.88% bonds (up to ₹3,03,030 Cr) backed by the government, replacing fertilizer subsidies over time. Food Bonds for Farmers: As urea subsidies phase out, farmers receive tradable bonds earning interest. Data-Driven Harvest Management: “Harvest Procurers Organisations” to validate farm output data. – Junior & Senior Agriculture Producer Officers (acting as Farm Agents) to register production at post offices. State vs. Central Roles: Central Govt: Manages inter-state & international trade. State Govts: Handle intra-state markets (no barriers to inter-state trade). No permanent schemes – All programs should have a 24-month lifecycle + 12-month transition. Corporate Participation in FPOs – A Radical Shift Key Ideas: Listed companies can own 26% of FPOs with full tax deductions for investments. Management stays with farmers, but corporate partners provide governance support. 3,000+ listed firms can engage, bringing capital and market expertise. Why This Works: Farmers focus on cultivation, while corporates handle compliance, logistics, and scaling. FPOs remain Indian-produce focused (no international trade distractions). No duplication of cooperatives – States can strengthen existing ones. Strengthening Rural Infrastructure CSR & Farm Labour Reforms: 100% CSR deduction for farm-related (not farmer-related) activities. Register 19 million farm employees under ESI (health insurance for life). MGNREGA Integration: Shift focus from public works to rural health, electricity, and permanent jobs via CPSEs. 5-year ESI premium support (5% of ₹500/day wage). Railways as Agri-Logistics Backbone: Dedicated freight coaches for farm produce and laborers. Yearly train passes for farm workers (flexible mobility). Railway land utilization for farm markets & distribution hubs. Boosting Cotton & Textile Demand: Provide 132m cotton cloth to farmers, 66m to farm laborers (linked to accurate census data). Railways to procure 2 crore cotton bedsheets to support domestic textile demand. Integrating Railways, Posts & Census for Rural Development Central Govt. Territories: Railway, Postal, Telecom land marked as Central Govt. zones for agri-markets. Permanent Census Mechanism: Post Offices to function as National Population Service centers. New UPSC cadre for Census & Election Officers. Healthcare for Farm Labour: Railway hospitals & ESI facilities to provide lifelong healthcare for farm workers. Reforming MGNREGA for Sustainable Agri-Growth Shift from temporary works to permanent rural jobs (health, energy, infrastructure). Relocate MGNREGA administration to Bharat Agriculture Council (Madhya Pradesh). Transport vouchers for marginal farmers to work in plantation sectors (funded via MGNREGA). Conclusion: A Self-Reliant Agri-Economy India can achieve 40 million additional tonnes of farm output by: ✅ Empowering FPOs with corporate partnerships ✅ Reforming MSP procurement & logistics ✅ Leveraging Railways & Post Offices for rural integration ✅ Shifting MGNREGA to sustainable employment This model minimizes fiscal burden while maximizing farmer incomes, market efficiency, and rural development. Let’s build an India that feeds itself—through education, organization, and discipline. References & Inspirations: Unto This Last – John Ruskin Small Is Beautiful – E.F. Schumacher The Peter Principle – Dr. Laurence J. Peter Originally proposed to Shri P.K. Mishra, Principal Secretary to the PM of India.
Posted by G Giridhar Prabhu

India’s Agenda on the Rupee – RBI Economic Action Plan

Context: Why This Matters The RBI is a creation of Parliament, and any surplus it returns must be used with intention and integrity. According to the Preamble of the Indian Constitution, the Republic must secure Justice – social, economic, and political – and the Dignity of the Individual. In that spirit, the dividend must be: – Used only for economic purposes. – Kept out of the general expenditure budget. – Focused on sustainability, corrections, and corrective actions. The central idea: Empower India’s economy from within, reduce external dependency, and honour India’s savings and institutions. Key Proposals at a Glance Capitalising Indian Financial Institutions: – Capitalise 100% Central Government-owned financial institutions through Equity Shares, Preference Shares, and Long-Term Bonds. – Recognise these as Sovereign Special Purpose Vehicles with clearly defined mandates. Reaffirming Sovereignty in Currency and Borrowing: – Clearly declare a list of institutions under Central Government ownership with RBI concurrence. – Mobilise internal savings and eliminate dependence on foreign currency sovereign loans. Five National Resolutions Resolution 1: No More Sovereign Borrowing in Foreign Currency India need not borrow externally. The Indian Rupee, powered by domestic savings and institutional integrity, can support all State functions and capital investments. Resolution 2: Prepayment of Multilateral Borrowings India should repay existing multilateral loans – ahead of schedule, by November 2026. Outcome: – Exit future borrowing from the World Bank, ADB, etc. – Let RBI make rupee provisions and allow specialised institutions to finance Indian projects in Indian currency. Resolution 3: A Strategic Investment Framework – Let Indian banks and financial institutions invest part of their financial assets in global securities. – Propose: – SLR to 22% – 6% to be invested in Multilateral Agency Bonds (in collaboration with RBI and the Ministry of Economic Affairs). Resolution 4: Capital Account Convertibility for National Entities – Expand Current Account transactions in all currencies. – Empower public banks and Indian financial entities to handle capital account convertibility under government guidance. Resolution 5: A Financial Services SEZ Cluster – Establish a Special Economic Financial Cluster under RBI & SEZ Acts. – Locations: Ladakh, Goa, Tiruchirappalli, Bhubaneswar, Bhopal, Mangalore, Chandigarh. – Impose strict capital convertibility regulations to protect Indian interests. India’s Debt Position (Estimated) As of March 2025: ₹181.74 lakh crore As of March 2026: ₹196.78 lakh crore Message: India must handle its finances internally. It can. It should. As of April 4, 2025: Foreign Exchange & Reserve Strategy – Forex Reserves: $676 billion – External Sovereign Debt: ~₹6.18 lakh crore Proposed: – Prepay all external borrowings. – Start purchasing World Bank or equivalent securities with our reserves. – Convert RBI’s holdings of US Treasuries into development securities. – Avoid complex FX hedging by focusing on early repayments and rupee-based asset management. Regulatory Actions: CRR and SLR – CRR Reduction: Reduce to 3%. – SLR Increase: Raise to 22% to absorb and reallocate surplus liquidity meaningfully. Strategic and Policy Coordination To succeed: – Ministry of Economic Affairs and RBI must stay in sync. – Public messaging from key offices (PMO, Cabinet Secretariat, DEA) must be clear and consistent. – Parliamentary approval and transparent debates may be required for legitimacy. Capital Account Convertibility – India’s Next Step This plan is a measured path toward Capital Account Convertibility, echoing the vision of: – Dr. Manmohan Singh – Dr. C. Rangarajan – Dr. Bimal Jalan – Dr. Y.V. Reddy – Dr. Subbarao – Dr. Raghuram Rajan This also gives partial implementation to the Tarapore Committee Reports I & II. Conclusion: Towards a Sovereign Economic Future India does not need to chase global credit ratings when it does not borrow externally. The world needs India as a banker to the world, not merely a borrower. This is the moment. Let the Rupee rise. Let India lead. References 1. Tarapore Committee Report I & II 2. Budget Papers – 3. RBI Bulletins and Publications by Former Governors 4. Contemporary Financial News and Anal ________________________________________________________________________________________________ The above suggestions were sent to the RBI and various other dignitaries on 2nd June 2025
Posted by G Giridhar Prabhu