An indecent proposal

Abstract

Using the RBI’s reserves to recapitalise PSB banks is a bad idea as it imperils the country’s ability to fight a meltdown The Economic Survey provides a preview of economic action that can be expected from the government in next year. Therefore, it is an important policy document.

This time the survey stresses that despite global slowdown and various challenges, including truant monsoon, India registered 7.2 per cent growth in 2014-15 and 7.6 per cent in 2015-16, becoming the fastest growing economy of the world. In 2016-17, India is expected to grow in the range of 7 to 7.75 per cent despite considerable headwinds. However, the survey mentions that India has a potential to grow around 8-10 per cent and as a pre-condition, policy stance should move away from anti-market and pro-state to pro-entrepreneurship, pro-industry and pro-competition.

To facilitate growth, smooth functioning of the financial sector is necessary. But in India, in recent years, stressed assets have been rising. Stressed assets, highest in public sector banks (PSBs), are mainly emerging from mining, iron and steel, infrastructure and aviation sectors — areas that involve substantial resources. Consequently, the return on assets of PSBs is less than one while that for private sector banks is more than one. Read more at: https://www.thehindubusinessline.com/opinion/an-indecent-proposal/article8314673.ece