 "Long term needs of economy should determine number of new banks: Rangarajan")
As former RBI governor Bimal Jalan-headed committee is scrutinizing applications for new bank licenses, his predecessor C Rangarajan has a word of advice for him. Rangarajan today said the number of applicants to get license should depend on the long term needs of the economy and not just the current requirements.
"A decision on how many new banks should get the license must be weighed on not only what the economy needs today but also what it needs two decades from now," Rangarajan, who heads the Prime Minister's Economic Advisory Council said at the CII's 3rd Finance and Investment Summit here.
Implicitly Rangarajan's advice may mean licenses to many players as the needs of the economy are going to be huge in the long term.
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He also emphasised on the use of mobile platform as means to achieving financial inclusion.
"It is worthwhile to consider whether mobile phones which are in hands of many Indians can be used for authentication and in a secured manner", Rangarajan said.
The electronic payment system is superior, more efficient and tracked better than manual mode, he said, adding there are nearly 700 million mobile connections in the country.
Rangarajan said that bankers should be a "friend, philosopher and guide to farmers". "The rural branches should provide advice to farmer and go beyond giving credit," he added
There are 26 applicants for new bank licences, including Tata Sons, firms controlled by Anil Ambani and Kumar Mangalam Birla.
RBI governor Raghuram Rajan said the RBI planned to issue new bank licences around January.
A day after official data showed that industrial growth fell way short of strong recovery in September, Rangarajan said the sluggish industrial growth may continue its run till the next year as factory production is expected to start growing more than 5% only from the next financial year.
"Once a pickup in industrial growth happens, moving ahead next year we should find the growth rate going back to 5-6%," he said.
The PMEAC chairman said he expects the industrial growth in the second half of the current financial year to be higher than that in the first half.
He pegged manufacturing growth at more than 3% in the second half against 0.1% in the first half.
"The impact of the various measures taken by the government will be felt in the second half," he said.
He also added that there has been some improvement witnessed in industrial production as it grew for the past three months.
In the first half of the current financial year, the factory output rose 0.4%. The official data released on Tuesday showed that the industries grew at a sleek pace of 2% in September despite hopes of a bounce back in the sector.
However, experts were not in line with the government's view and felt that achieving 5% factory output growth is a distant dream. "Expecting growth at that level in the next 12 months is difficult", said Anis Chakravarty, senior director of Delloitt India. He said that as government has to contain its expenditure due to the fiscal burden, it will spend less and hence, that will not translate into growth. "The only hope is the private sector", said Chakravarty.
The Centre's fiscal deficit has already touched 76% of the Budget Estimates (BE) in the first half of this year. The government maintains that the deficit will not exceed the "red line" mark of 4.8% of GDP in 2013-14.
Even as vegetable prices continued to soar, Rangarajan expected the rate to come down in the coming months. "This has been caused mainly from food articles which will be moderated as a result of impact of good monsoon", Rangarajan added. The retail price inflation bounced back to double digits in October, after a gap of six months. End