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Top 50 Largest NPA Cases Top Priority: Sanjeev Sanyal, Principal Economic Advisor

In an exclusive interview with BW Businessworld’s Suman K Jha and Manish Jha, Principal Economic Advisor Sanjeev Sanyal spoke about the state of the economy

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How do you look at the overall state of the economy currently?

As far as we can tell, the economy is gathering pace. We got a particularly strong number for India’s GDP grows at 8.2 per cent in the first quarter of the financial year (2018-19). Admittedly, that particular reading was helped by the base effect from last year’s GST introduction, but even if you strip out the base effect, the economy is definitely growing at 7.5 per cent or higher. And, with this growth rate, we are the fastest growing economy in the world. This momentum also reflects in other economic indicators as well. Our export and import numbers have gone up sharply, both suggesting acceleration. Nonetheless, despite the acceleration of growth, we have also managed macroeconomic stability. Inflation and the fiscal deficit are within control. 

The one area we need to watch closely is the current account. Not only does the acceleration of growth lead to higher imports but also high global oil prices over which we have no control. This is something that we need to watch very carefully.

What do you think about the exponentially rising oil prices?

We are an oil importing country and we have little control over global prices. All we can do is to reduce some taxes domestically, and some states may have a bit of space for that. But remember, every time you reduce taxes, you are cutting back spending somewhere in the economy. 

So, already, some states have taken lead in this regard. What is your opinion?

Those states that have the fiscal space may do it. But be clear that the space is limited for the country as a whole. As long as we can endure it, we should avoid the old ways of accumulating losses and creating oil debt. 

Do you think that there is a case of bringing petrol prices under the GST? If not now, is there any long terms goal to bring it under GST?

I am not aware if there is any immediate proposal in this regard. But, let me be clear that GST is no solution for the problem posed by the high price of imported oil. 

Rising crude prices and falling rupee- do you think, these are the major concern areas for you? 

Rising oil price obviously is a concern, but the Rupee issue is more complex. The Rupee has depreciated significantly since the beginning of the year, but if we take a longer perspective of five years, the rupee has not really depreciated much against anyone except the US dollar.  In that perspective, I would argue that rupee has been reasonably stable and the real effective exchange rate, which had appreciated quite a lot, has corrected. It may not have been prudent to hold on to a strong dollar when all our trading partners and competitors were depreciating. Sure, we don’t want the currency to weaken beyond a certain point but the exchange rate has been allowed to find its own market level. The Reserve Bank of India (RBI) has so far conserved its forex reserves. A reserve of US$400bn is adequate to manage excess volatility if necessary.

At the onset, you said that macro parameters seem sound but there are apprehensions that 78 large companies are facing dissolution under the Indian Bankruptcy Code (IBC). What is your take on this issue?

This is the legacy of an irresponsible lending boom during the period from 2006 to 2012. These have been weighing down the system for a long time. Now we are liquidating, auctioning and resolving these problem assets through the IBC process. This is a good thing, not a bad thing.

Do you think that the private sector is under strain the way Infra Leasing and Financial Services has defaulted?

The authorities are watching this closely. And, as far as Finance Ministry, SEBI and the Reserve Bank are concerned, our main job is to ensure that liquidity conditions remain stable and orderly. Markets will go up and down but the system should remain liquid. This is important. 

What are the major challenges that you foresee in the economy? 

The key issue is to ensure that the banking system, which is under stress for quite some time, gets cleaned up and running again. Top 50 largest NPA cases should get resolved. Then banks can resume normal lending. That is priority number one. The priority number two is to make sure that liquidity conditions in the financial markets remain stable and market trading should happen smoothly. 

Is bank merger the first order solution to our banking problems? Is it also a part of NPA’s solutions too?

The first order issue is the NPA problem. This is something that we are looking at continuously. We have created several mechanisms under the overall IBC framework to resolve the matter, including the Sashakt programme. However, there are other things that also need to be done such as bank consolidation. This is an issue that has been in the debate for quite some time. And, in this context, the first attempt was done last year when we consolidated the affiliated banks under the SBI umbrella. Now, we will do another set with Dena, Vijaya, and Baroda. We will do it keeping in mind commercial considerations as well as minority shareholder interest. This is an initiative to improve long-run commercial viability, and somewhat separate from the more immediate NPA issue. We have to do it one by one; it will not be done in hurry. 

Why do you think we are not big on disinvestment?

The government is very keen on disinvestment. We did try Air India although it has not worked out yet. It was not the lack of intent. But we will keep working to disinvest other assets. 

So, where do we stand on Air India?

I think another arrangement is being worked out for privatizing it. You can consult the civil aviation ministry for details. 

There are external factors –as one side you have the US-Iran tussle and impending sanction and other- two largest economies-US & China- are at loggerheads with tariff led trade wars which might escalate on a global scale. What kind of impact do we foresee on our economy due to this? 

Given the fluid international situation, we should not have a pre-conceived notion about where it will all go. We should watch the situation closely and respond flexibly to protect our national interest. Of course, we have to also take into account our WTO and other international trade obligations. 

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