The government should desist from trying to salvage ailing private companies, says a top Asian Development Bank official. “Bailing out private sector companies with public money is inappropriate,” ADB’s managing director-general, Rajat Nag, told Business Standard.
When private enterprises manage risks appropriately, they enjoy benefits. Tax payers should not be asked to bear the burden if things go wrong, he said in reference to a query on the clamour for throwing a lifeline to companies facing financial woes.
The global economic slowdown, a sharp rise in input costs and high interest rates has hit companies across sectors.
Nag said the asset quality of Indian banks had come under strain due to the hard times. "Indian banks are well capitalised and still robust, though there has been a rise in non-performing assets, which are still manageable,” he said.
On the fallout of the sovereign debt crisis in Europe, he said it had cast a shadow on future growth prospects of developing Asian countries. In September, ADB had annual growth forecasts of 7.5 per cent for developing Asia, with 7.9 per cent for India and 9.1 per cent for China. "These were made with an assumption of orderly resolution of the euro zone debt crisis. Now, the growth forecasts have become cloudy for developing Asia," he said. The bank will have to revise the forecast downwards due to the negative knock-on effect of the euro zone crisis.
For India, the latest industrial production figures and the lower export growth figures are of concern. The concerns on inflation and volatility in the volume of capital flows that were identified in September continue to be the cause of concern for policy makers, he added.
On the multilateral funding agency’s assistance, Nag said: “Our commitment to India has been around $2.5 billion a year and that is expected to continue.”
As of December 31, 2010, the bank's exposure to India was $10.2 billion. Of which, $3.7 bn worth of credit was to the transport sector, $1.3 bn to water supply and other municipal infrastructure and services, $2.5 bn to the energy sector, $1.05 bn to the finance sector and $0.2 bn to agriculture and natural resources.
Asked if any state electricity board or company had sought restructuring due to falling health, he said none had. The bank is satisfied with its investments in large projects, such as the building of highways. Nag said, though, the country needs significant enhancement in infrastructure in not only utilisation of resources but in implementation. “This is something India needs to learn from China,” he added.
