Issue of Recapitalisation Bonds and Reducing Government Stake in PSBs being Explored for Bank Recapitalisation: Sanjeev Sanyal

The government is taking bold initiatives to facilitate a shift to a rule -bound and trust based system of economic management in the country from a rent-seeking and patronage based society prevailing at present. The recent reform measures such as demonetisation, introduction of GST, bankruptcy law, and RERA, among others, should be seen in this context, said Mr Sanjeev Sanyal, Principal Economic Advisor, Ministry of Finance. He was speaking at an interactive Panel on Building Blocks for a New India, at the India Economic Summit being organized by the World Economic Forum and the Confederation of Indian Industry (CII).

While acknowledging the slowdown prevailing in the Indian economy, Mr Sanyal said that the current GDP numbers are not the only marker of our economic performance. Our strong macroeconomic fundamentals such as robust forex reserves, low current account deficit, benign inflation, etc lend stability to our economy. The Government is also looking at fixing the problems relating to employment data.

 

Mr. Sanyal stated that the government is looking at options such as issue of recapitalization bonds or diluting government stake in PSBs for recapitalization of banks. He also mentioned that the number of banks may come down within the 10-15 range from around 22 at present as part of the effort at bank consolidation. There is scope for both the public sector and the private sector banks to co-exist as both have different risk-return profiles.

Ms Shobana Kamineni, President, CII stated that both demonetisation and GST would eventually help towards formalization of the Indian economy. Going forward, the government should continue to work on ease of doing business reforms, persuade states to improve the investment climate and help fix physical and social infrastructure.

Mr Adi Godrej, Chairman, The Godrej Group, said that GST is a landmark and game-changing reform which would yield significant benefits in the long run. He further mentioned that the subdued Q1 GDP growth rate is essentially the result of de-stocking undertaken by trade during the month of June as the GST rate for manufacturing was expected to be below that of excise and VAT. He added that going forward, growth figures would improve during July-September and rebound further in the second quarter of this fiscal. Learning from past experience, companies should rely more on equity than on debt, which is now happening with more companies going for IPOs. Moreover, improving efficiency in land use should be a priority for the government.

Mr Sanjeev Bajaj, Managing Director, Bajaj Finserv, while lauding the government for its action-oriented approach, said that that the return on equity (ROE) is presently high in the country on account of high cost of capital, high cost of doing business and the economy being on the growth path. Once the Indian economy matures, the ROE would fall which would mean that our foundation has become stronger. He also called for reforms in labour laws to promote employment.

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