Will India script an uninterrupted growth story?: The Hindu


Annual lecture by P Chidambaram at The Hindu

"Firstly, the NPA scare. Non-performing assets in the Indian banking industry are not a new phenomenon. In recent times, the problem of NPAs was acute in 2002 and 2007. Bankers had lent the money, so bankers were told to recover the money, and they did. This time too, the bankers should have been allowed to do their job. Instead, they were chastised by all and sundry and the government created the scare of prosecution in every case of NPA. Dr. Raghuram Rajan, then Governor of the Reserve Bank of India (RBI), realised the consequences of whipping up mass frenzy over NPAs and he cautioned that a heavy-handed approach "will kill both entrepreneurship and lending". His warning on handling the NPA issue fell on deaf years and the result is that we have a banking industry that is totally paralysed. For nearly 24 months, bank credit growth has been at its lowest level in decades and continues to plunge. In January 2017, bank credit growth to all firms was a negative (-) 5.06 per cent, to micro and small industries a negative (-) 7.41 per cent and to medium industries a negative (-) 10.23 per cent. No banker is willing to entertain a big-ticket loan proposal (even if the bank has received one) and is content to hand out home loans and vehicle loans and pass time until retirement.
The second disruption was the standoff between the government and the RBI during the last year of the term of Dr. Rajan. It has since been revealed—in bits and pieces—that Dr. Rajan was opposed to demonetisation. His non-continuance was always the more likely outcome. His exit, and the manner in which it was executed, underscored the discomfort of the government in working with truly outstanding intellectuals. If Dr. Rajan's case was an example, the ouster of Dr. Amartya Sen from Nalanda University was another example.
The third—and most calamitous—disruption was demonetisation. On November 8, 2016, 86 per cent of the currency in circulation was declared illegal. It was done without forethought or preparation. It threw the entire economy out of gear. The most affected were the daily wage earners, the daily income earners and micro, small and medium businesses. None of the stated objectives of demonetisation was achieved or is likely to be achieved. The negative impact of demonetisation was evident: an already slowing economic growth rate slipped further in Q3 of 2016-17 (September-December). Gross Value Added (GVA) is the metric favoured by the CSO. The growth rates of GVA during the last four quarters were 7.83, 6.89, 6.69 and 6.61 per cent. The growth rates, excluding government, agriculture and utilities, were 8.76, 7.35, 6.47 and 5.73 per cent. Both graphs establish a declining rate of growth. The figures for Q4 (January-March 2017) will seal the argument."

The link to the text and video at the top.
M G Warrier

One is not wiser after reading the whole text. History, Statistics and Politics have been used to conceal past failures and absence of alternative policy propositions to correct the 'wrongs' listed.
Stories about Dr Rajan's exit on difference of views on demonetization, jugglery with growth figures or regrets about spectrum auctions are all useful for future historians. What is to be done here and now is not specified. Can't wait for Chidambaram to come back and set right things.
M G Warrier


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