Q. Rs 70,000 crore for PSU banks, a life­line for NBFCs, new sops for auto… What else can the gov­ern­ment do to shake the econ­omy out of its cur­rent stu­por?

India Today - - COVER STORY -

A. N.R. BHANU­MURTHY

This is one thing we have been ar­gu­ing for quite some time—speedy im­ple­men­ta­tion of bank re­cap­i­tal­i­sa­tion—and I am glad that this is hap­pen­ing. This in it­self should help the banks re­lease substantia­l cap­i­tal re­sources for credit pur­poses. The growth of credit to the com­mer­cial sec­tor be­tween April and Au­gust 2019 is at -0.8% com­pared to the same pe­riod last year and I hope re­cap­i­tal­i­sa­tion will re­v­erse this neg­a­tive growth. The gov­ern­ment should use the ad­di­tional re­sources that it has re­ceived from the RBI to com­plete the in­fra projects.

AJIT RANADE

The con­cept of a bad bank needs a relookt. Right now the challenge is not that there are not ad­e­quate funds but that there are no ad­e­quate bor­row­ers, there is no de­mand for credit. Longer term struc­tural re­forms are more im­por­tant. How we can get large projects go­ing which will have large bor­row­ing re­quire­ments.

MAITREESH GHATAK

None of these ad­dresses the core struc­tural prob­lem and in­volves a mind­set of a kitchen-sink ap­proach of throw­ing ev­ery sop and tem­po­rary fix at the prob­lem, reflecting both a sense of des­per­a­tion and clue­less­ness.

D.K. JOSHI

For gen­er­at­ing re­sources in the near term, the gov­ern­ment should ag­gres­sively pur­sue privatisat­ion and asset monetisati­on. These will help in gen­er­at­ing rev­enues in the short run which can be de­ployed for in­fra­struc­ture cre­ation. The cur­rent slow­down pro­vides an ex­cel­lent op­por­tu­nity to front­load these mea­sures.

R. NA­GARAJ

Most of these mea­sures are from the sup­ply side, whereas the prin­ci­pal eco­nomic prob­lem now is the lack of ag­gre­gate de­mand. The best way to stim­u­late the econ­omy is to step up pub­lic in­fra­struc­ture investment such as ru­ral roads, high­ways, rail­ways, by pub­lic bor­row­ing. Yes, such mea­sures will breach the fis­cal deficit tar­get. But at a stage when in­fla­tion is low, there is an investment de­mand con­straint, re­viv­ing out­put growth is far more im­por­tant

“PRIVATISAT­ION AND ASSET MONETISATI­ON SHOULD BE USED TO GEN­ER­ATE RE­SOURCES IN THE NEAR TERM, WHICH CAN BE SPENT ON BUILD­ING IN­FRA­STRUC­TURE” —D.K. JOSHI

than meet­ing the fis­cal deficit tar­get. Pub­lic bor­row­ing in do­mes­tic cur­rency for pub­lic investment is an em­i­nently jus­ti­fi­able propo­si­tion, as many an econ­o­mist would agree. Such in­vest­ments could, in turn, bring in pri­vate investment to kick­start a vir­tu­ous cy­cle of growth. Let us rec­ol­lect the Va­j­payee gov­ern­ment’s mas­sive road re­con­struc­tion Golden Quadri­lat­eral Pro­gramme con­nect­ing the four metro ci­ties, and the PM Gram Sadak Yo­jana (PMGSY) aimed at con­nect­ing all vil­lages by mo­torable roads, which helped re­vive the sag­ging econ­omy in the early 2000s.

D.K. SRI­VAS­TAVA

It is fea­si­ble to in­crease pub­lic sec­tor investment by 3.5-4% points of GDP.

One per­cent­age point of GDP each may come from ad­di­tional cap­i­tal ex­pen­di­ture un­der­taken by cen­tral and state gov­ern­ments and the bal­ance by the pub­lic sec­tor en­ter­prises.

PRONAB SEN

These are all sup­ply-side interventi­ons; the gov­ern­ment should be thinking of de­mand-boost­ing strate­gies, es­pe­cially if they think this is cycli­cal.

ILA PAT­NAIK

Fi­nance is of­ten de­fined as the lubri­cant that keeps the econ­omy go­ing. When fi­nance fails, the real econ­omy sees an im­pact.

While in­creas­ing liq­uid­ity, low­er­ing in­ter­est rates and re­cap­i­tal­is­ing pub­lic sec­tor banks can ease im­me­di­ate dif­fi­cul­ties and in­crease credit growth, we will not get a dy­namic and com­pet­i­tive fi­nan­cial sec­tor with­out leg­isla­tive and reg­u­la­tory re­form. As we have seen over and over again, short-term fixes leave fun­da­men­tal weak­nesses in the fi­nan­cial sec­tor and the econ­omy un­ad­dressed. Banks that re­peat­edly make losses are re­peat­edly given tax­payer-funded bailouts. It is al­most as though bank­ing is [con­sid­ered] a po­lit­i­cal ser­vice meant to ful­fil gov­ern­ment obli­ga­tions and pro­vide jobs rather than a crit­i­cal in­stru­ment of re­source al­lo­ca­tion in the econ­omy. In­dia’s un­com­pet­i­tive fi­nan­cial sys­tem, whose growth depends on re­peated bailouts, needs to be re­placed by a com­pet­i­tive sys­tem with var­i­ous markets in­clud­ing pri­vate banks, bond markets and well-gov­erned pub­lic sec­tor banks. Many studies and ex­pert-com­mit­tee re­ports have shown the way for­ward. This gov­ern­ment has the time, the num­bers and the po­lit­i­cal confidence to un­der­take bold re­form—in­crease com­pe­ti­tion to pub­lic sec­tor banks and take se­ri­ous steps to im­prove their gov­er­nance. In ad­di­tion to short term quick-fixes, the gov­ern­ment needs to bring solutions like these back on the ta­ble.

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