Before the country can embark on the path of high growth, it must reform its system and re-align its fundamentals
Everyone in this world has some ‘habits’ that can be categorised as ‘good habits’ or ‘bad habits’. This applies almost universally. One of this writers’ bad habits is to go back to some old write-ups and check, how the projections, forecast have rolled-out.
The respectability attached to the concepts, originating from the West can well be recognised. After all, the three key positions in the economic environment in India — The Governor of the Reserve Bank of India, the Chief Economic Advisor to the Government of India, vice chairman of the National Institution for Transforming India (Niti) Aayog — are all occupied by people of the same genre. All of them owe their primacy in the Indian environment to their theoretical grooming in the West.
One is not keen to open up a debate on whether they have Indian citizenship or not. They are, quite simply, ethnic Indians who made their way to eminence through the Western route.
As it has always been, the Western route remains the quickest route to significance in India. The truth of the matter is that they are where they are in India, because they grew up the way they did — that is, in the West.
So, when Chief Economic Advisor Arvind Subramanian on February 28 said, “India has reached a sweet spot — rare in the history of nations — in which it could finally be launched on a double-digit medium-term growth trajectory”, people sat up and took notice.
After all, Mr Subramanian had every right to sound profound and insightful. Six months down the line, there are some hapless creatures, still looking for the ‘sweet spot’ if not the double digit growth.
That day, column after column carried Mr Subramanian’s quote. The Chief Economic Advisor in his maiden economic survey, saw an obligation to paint a bright picture. The sheer thought of surpassing China in this regard, was far too attractive. The cookie has to crumble. All cookies do.
The economic survey has suggested the appointment of an independent re-negotiation commission with political authority and reputational integrity to resolve more difficult cases of bank loans. However, this is yet to happen and the bankruptcy procedure is yet un-delightfully ineffective and time consuming, as they are known to be.
The banking sector was supposed to practice de-regulation, differentiation, diversification and dis-interring. like the five T’s, the four P’s, the four D’s model was to understand, grasp and feel elated. The deregulation was meant to address the statutory liquidity ratio. This is something that was so mildly addressed some days ago that one almost missed it.
The priority sector lending continues to confuse. Differentiation within the public sector bank with respect to re-capitalisation, shrinking balance sheets and ownership is in a state of limbo. It is true that re-capitalisation has again been talked about.
There is no need for a genius, to point out that re-capitalisation will not work till the ‘hole at the bottom of the sea’ is plugged. To plug this hole, the need of hour is managerial revolution of the banks.
Indeed, the exit mechanism continues to be as complex as they have always been. This destroys the possibility of improving exit mechanism. Many writers on the subject have tried to indicate that looking at the public sector banks, as if they were homogenous, is entirely erroneous.
Re-capitalisation cannot be a panacea. There are serious issues of skill formation and decision-making style, within the banks singly and collectively.
The concept of Government ownership in many places still needs to be re-invented. If working through the Government creates rigidity, the mechanism of differentiation needs to be utilised to create resilience.
At the ground level, the ownership structure of asset re-structuring companies, in which banks themselves have significant stakes is a miss directed line of thought.
Any back of the postage stamp survey will show that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, works more against small borrowers and medium sector enterprises than powerful large scale defaulting enterprises.
One needs to recognise that there is a clear case for fundamental re-alignment of thoughts, indeed selective disinterring — which should not get lost in the mirage of having seen the ‘sweet spot’.