Will India script an uninterrupted growth story?: The Hindu
http://www.thehinducentre.com/
Annual lecture by P Chidambaram at The Hindu
Excerpts:
"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
My VIEW:
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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