Tag: Arvind Subramanian

India may get its first woman chief economic advisor soon: report

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India could soon get its first woman chief economic advisor (CEA) with the post having fallen vacant at the end of Arvind Subramanian’s tenure in August, The Economic Times reported.

The Narendra Modi-led government, despite having only six months left at the Centre, wants to appoint a new CEA to help with advice in times of global turmoil, the report said.

“We are looking at fresh faces and a committee is looking at candidates,” a person familiar with the development told The ET.

The government is looking at various candidates, including Poonam Gupta, lead economist for India at the World Bank. Gupta was also the RBI’s chair professor at the National Institute of Public Finance and Policy (NIPFP), the report said.

Sajjid Chinoy, chief India economist at JP Morgan and Krishnamurthy Subramanian, professor at the Indian School of Business are also under consideration for the post of CEA, the report added.

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Vijay Kelkar to head CEA search and selection committee; over 20 applications received

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian economist Vijay Kelkar will head the chief economic advisor (CEA)  search and selection committee, a government official told CNBC-TV18.

Vijay Kelkar is a former bureaucrat who has served as the petroleum secretary and had succeeded the-then Reserve Bank of India (RBI) governor C Rangarajan.

The search panel consists of secretary economic affairs, secretary department of personnel and training (DoPT), among other members.

The union finance minister received around 20 applications for CEA job till now, the official added.

For the post, the applicant is required to be an MA in economics, preferably with a doctorate, and six years of experience in economic research or giving economic advice or evaluating economic reforms.

The applicant has to be at the most 50 years old if coming from outside the government and 56 if from within the government.

The panel will be required to recommend shortlisted names to the appointments committee of the cabinet.

In June, Arvind Subramanian stepped down from his chief economic advisor post reasoning that he wished to return to the US due to family commitments.

“Few days ago, chief economic advisor Arvind Subramanian met me over video conferencing,” Arun Jaitley, finance minister, said in a Facebook post that month.

“He informed me that he would like to go back to the United States on account of pressing family commitments. His reasons were personal but extremely important for him. He left me with no option but to agree with him.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Panel of MPs to summon bankers, may quiz RBI governor Urjit Patel

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The parliamentary estimates committee is expected summon top bankers once again, to discuss the issue of bad debts, sources privy to the developments told CNBC-TV18.

Earlier this month, the panel had summoned RBI governor Urjit Patel and key finance ministry officials along with heads of some banks to respond to queries on non-performing assets (NPAs).

The panel wants to know about the NPA loans, approving authority, directors on the board and the minutes of the meeting.

As per top sources in the estimates committee, in the next few days, the panel would be getting evidence from various public sector banks.

It had already talked to Arvind Subramanian, the Chief Economic Adviser, who said that former RBI governor Raghuram Rajan had identified the NPAs problem some years back.

The estimates committee is also looking at various people involved in this process and has already summoned union finance secretary Hasmukh Adhia and other top banking officials.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Read the full text of outgoing CEA Arvind Subramanian’s interview

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Saying the economy had seen the worst of the bad loans crisis, outgoing chief economic adviser Arvind Subramanian said the country was making progress on the resolution of bad loan albeit at a slower pace.

He added that the recapitalisation plans of public sector banks cannot be divorced from newer reforms and added that the government has a long way to go in terms of PSU bank reforms.

Speaking about the non-performing assets of the power sector, he said these assets could not be liquidated at the moment as their valuations were too low to be acceptable.

Subramanian also added that current macroeconomic conditions had become riskier at the moment and that rising oil prices would stoke inflation. He, however, added that if the country could weather this volatility in oil prices, the economy would be in a good place by the next year.

Watch Here: Outgoing CEA Arvind Subramanian says worst of bad loans crisis is behind us

Edited Excerpt:

Q: Let me start by talking to you about this debate that has been going on about imported and exported experts versus domestic home grown experts and I think the idea of imported ideas being disconnected from Indian realities can be debunked easily. But let me leave that aside. The other criticism which may perhaps have some legitimacy is the fact that you don’t have any skin in the game. You might be sectoral experts, you come into government missionary and you end up being perhaps to quote you in your own words technocratic cogs in the vast government machinery how do you ensure that your ideas actually work?

A: The question is whether effectiveness depends upon whether you come from abroad or come from within.

Q: That argument can be debunked?

A: So we are talking about how do basically outside technocrats become effective? I think there are no simple solutions for that. Obviously, it depends very much on the person in the job itself and it also depends upon what the arrangements that the government makes to facilitate this. It depends mostly on the incumbent.

If the person who comes in can forge relationships, build trust, show that he or she is useful then it can create a virtuous dynamic where more and more people want that persons services and then this vast mission embraces you and looks to you for advice, ideas and so on.

Or you can be on a negative dynamic where you come in, you are not effective people don’t listen to you, therefore you are even more ineffective and so on. There is no kind of formula for this, but a lot depends upon who comes in.

Q: Do you feel less useful today then you did maybe three years ago?

A: It is for ours to judge how effective I have been. But I have had just fabulous working relationships with so many people in government, outside government, ministers, cabinet, chief ministers, finance ministers, so I don’t think I have had a problem of working with government machinery at all. But of course that is what others to judge how effective I have been. But I have certainly enjoyed myself.

Q: Let me talk to you about several of the ideas that you have put forward through the economic survey. Let me start by talking to you about the one that has been talked about the most which the identification of the twin balance sheet problem and then the remedy there on. Do you believe that post diagnosis, the kind of work the effort, the ideas, the elements that ought to have been put forward maybe took too long to put in place?

A: That is a good and open question. We can legitimately ask whether it took us longer than it should have and by us we mean both the government and the Reserve Bank of India (RBI) because both have had roles in this.

I think you could make the case, because remember I think it is a very fair question because the twin balance sheet challenge, I think we have had almost since about 2011 or so or maybe 2010. So, 7-8 years in counting and I would say that between then and 2014 nothing happened. So we lot about three-four years right there.

Then once 2014 happened when we started taking serious actions, there was Indradhanush, then there was asset quality review and then the IBC. So I would say maybe it took longer than it should have it is possible, but I don’t think it was because of not recognising that there was a problem.

Q: Was it a growth bet, was the hope that we are in an environment of growth and that will ride us through?

A: I think that is certainly part of the problem. There were three things that can explain why it took so long, maybe four things. One I think that remember that in 2014 -2015 and 2015-2016 the economy growth was actually accelerated so you are absolutely right, if growth is actually accelerating people say what is the problem?

If you are getting this growth there is no unlike problem and also maybe growth itself will make some of these assets look better. So, that was one reason why maybe it took longer than it should have.

Second, the IBC legislation and all the necessary ingredients that needed to be put in place only were in place by late 2016. I think the legislation was passed then so I think that a policymakers at some level perhaps realised —

Q: Underestimated the problem?

A: No, remember that I proposed the bad bank and I wanted the bad bank to be done earlier. But somewhere policy makers realised that you needed a judicial framework for this and that is why it took longer because maybe the bad bank would have been set up earlier, but you couldn’t have this unless the IBC legislation was in place and that is why it took some time.

The third reason it took some time was let us be honest about this, even though people knew that there were lots of toxic assets in the system there was never any kind of public acknowledgement of that.

That is why when the asset quality review in March 2016 gave the first results everyone generally accepted that the scale of the problem is quite large. It is not going to be solved just through growth alone and we need to take more actions.

So, I think a combination of the growth bet as you said the fact that the IBC was not yet in place the fact that there was no public acceptance until the asset quality was done. That there are all these bad assets. Combination of these things then explain why the actions came when they did.

Q: Do you feel confident now in light of whether it is the IBC or the various measures that have been announced by the government that the worst is behind us and that we are now on the path to being able to clean up so to speak the banking system and how long do you believe that will take? If you talk to bankers they will tell you the worst is behind us but then the next quarter you look at the numbers. What do you feel at this point in time?

A: The IBC was a major reform, absolutely transformational in terms of debtor-creditor relations exit and we have seen some early successes under that. I think we have done very well and I think the worst is behind us on the recognition side. However there is always what I call the Subramanian law of non-recognition that at any point in time the scale of bad assets is 20 percent greater than what anyone is telling you at that point of time.

Q: So, you are saying it could be worse than what we currently are dealing with?

A: There I think we have made great progress. A little bit more may be can come out but I think there we have made a lot of progress on recognition. Now I think we probably are close to understanding and acknowledging the true scale of the problem.

Resolution – IBC fantastic, great work but we have to be honest and have a constant review of are we making progress as fast as we should? We are making progress but it is not as fast as we require.

Q: Why?

A: I think partly the NCLT process is overburdened, partly I think the necessary process of getting every verdict approved by Supreme Court which was unavoidable, is unavoidable because when you have stigmatised capital you need this judicial imprimatur on all these things because that is what the public accepts as legitimate.

So, some delay is in avoidable. However I think some NCLT maybe overburdened, we need to find ways of unburdening NCLT.

Q: Is the AMC the way to unburden the NCLT?

A: I don’t know, I haven’t studied enough but I certainly think greater thought may need to be given for example to seeing whether some sectors require sui generis treatment or not.

Q: Like power?

A: Like power for example. I have ideas but I have not thought them through yet but we need to think collectively because there is something quite distinctive about the power sector. There are three things that are distinctive about the power sector, first these are good assets, they can’t just be liquidated.

Second, if given government policy today you get bidding on these assets then the valuations will probably be too low to be acceptable. Third, I think is the most import point, that extracting more value from these assets relies on government policy and government action.

So, this is a sector that actually the government can take a number of actions to kind of increase the valuation and how much value can be extracted. For example tariff, for example NTPC, lots of things that the government can do. So, for these reasons we need to have a discussion on whether we need a kind of sui generis treatment, so that is on the recognition, we have to be candid about that.

On recapitalisation and reform I think there is still some way to go because recapitalisation we don’t know what the valuations are going to emerge, we don’t know what is going to happen to the power sector and banks own ability to raise capital at this stage is limited.

Moreover the most important reform part of it, recapitalisation should not be done divorced from reform and on reform we need to make a lot more progress.

Q: Does that disappoint you because that certainly disappoints members in the RBI who have spoken out saying that governance reforms within the banking sector have taken a backseat, would you agree?

A: I don’t want to assign blame.

Q: It is not about assigning blame, if you are being candid to say that the recognition problem has been addressed but the resolution problem still has some distance to cover then would you say that the reform problem has even more distance to cover?

A: I would agree. I think reform has a long way to go. I would say though that there are two sets of reforms, reforms for two sets of banks. One is the banks that are may be not viable fundamentally in the long run under the PCA.

“The RBI deserves credit for the way they have handled the whole PCA thing.”

In the long run we do want these banks to become narrow banks, shrink their balance sheet but do it in a gradual fashion.

It is the other banks – governance reforms may be one but the whole question of whether we need more private sector participation, I think that is still an open question and what kind of regulation we will need going forward because while the public sector banks have been the big part of the challenge, recently we are discovering that these problems also occurred in private sector banks as well.

So, we need to make a lot more progress on the reform side and on the regulations side.

Q: Since you are talking about reforms and regulations in the banking you were talking about private sector participation in the banking sector how do you then explain the government’s decision to try and get LIC to pick up IDBI Bank?

A: I haven’t studied this very closely, what LIC and IDBI are involved. Certainly it is more in the nature of the merger than privatisation. But if it is possible why are this route to actually get majority private sector participation in IDBI eventually that is one possibility. If we could then this would be a price worth paying for that outcome.

Q: Since we have talked about this business of stigmatise capitalism which is what you have been concerned about what are the implications not just for the banking sector but for the private investment, for a pick up in the economy? Today in parliament we have got a debate on the fugitive economic offender’s bill. Right down your corridor in the financial services department they are talking about revocation of passports of possible economic offenders. Is this going to make matters worse or better when it comes to de-stigmatising capitalism?

A: Firstly, stigmatise capitalism is a long standing problem. It is the result of cumulative result of all that has happened over the last many years. Now stigmatise capitalism means two or three things. One it means that private sector entry into new areas is not going to be a problem, I think that can proceed.

Like we have seen in airline, we have seen in telecom, we have seen even in new private sector banks coming in. I think entry into new sectors, new private –I think stigmatised capitalism bites most in terms of handing over public sector assets to the private sector.

Q: So strategic disinvestment is there?

A: Not there, I think it is going to be challenging, it is going to be difficult. Two it also means that because of stigmatise capitalism I think the judiciary is going to have a greater role to play in many of these decisions. That is why IBC framework probably better than bad bank idea that I was propagating. So, the judiciaries is going to have a much great role.

The third which comes to the point that you said about it is a fact that we have to accept that stigmatised capitalism means that to de- stigmatise it you have to have or show the public at large that those who did wrong are punished. That is part of de-stigmatising capitalism.

You cannot escape that. That is why under the IBC also it was necessary to exclude. So I think that is a fact of democratic politics, I have sympathy for that that you have to accept. Therefore what you are saying is also right that this enforcement can get overzealous.

Q: Is it overzealous today?

A: I don’t know this well enough to know whether it is overzealous, I think it is certainly a risk. We have had this allegations of tax terrorism, overzealous enforcement, so I think that it is a tough call to make. On the one hand you have to be seen to be punishing people, on the other hand it can get out of control.

So, I think it requires a lot of judicious both activism but also judicious restraint on the part of the enforcement agencies. I am not an expert on enforcement I don’t know how you do this. My own view is that you have to do some of this, but I think it is better if you kind of use a less heavy handed measures, uses carrots more than sticks for this, I mean that is my, for whatever it is worth my view.

But some amount of going after the buy who demonstrably did wrong things in democratic politics, how can you avoid that.

Q: Let me talk to you about the macro picture now, the government did inherit to a large extent fairly benign macros and you have worked on macro stability, you have been successful on that as well. Given where we stand today, inflation moving higher, the rupee today at 69, oil prices continue to edge closer to $70 per barrel plus sort of range, what would concern you most as far as the macro picture is concerned and specially the external environment?

A: We have to be clear about levels and changes. Inflation is not at double digit, fiscal is not where it was, current account is not where it was but the macro has become riskier relative to a few months ago, I agree, you are absolutely right on that. However to me certainly the biggest worry always for India is oil prices.

Oil prices may end up this year being 25-30 percent more than last year, that is a shock which will have an impact.

I don’t think that we can kind of pretend that if oil prices go up, the inflation will not pick up or the current account deficit will not worsen, all these things will happen. All we can do is to see how we can buffer our economy against the worst impacts of these shocks. We can control what we control, that means continuing the reform effort and holding the macro, sticking to the path of fiscal prudence, all of this do no harm.

If we end up next year having weathered this turbulence and volatility, I think we will be in good shape, the country and economy will be in good shape to accelerate the process of reform.

Q: I want to talk to you about one of the controversies during your tenure and that was fairly sort of public not spate but difference with the RBI on the issue of interest rates. You put out a statement which was quite unusual saying that the MPC ought to have cut interest rates and the governor said that they had declined the request of the finance ministry for a meeting. Where do you see interest rates headed now and do you regret what happened then?

A: Let me be very clearly in this, I think my call for lower interest rates then was completely justified and most people agreed with that as well.

Q: The government certainly did?

A: The public at large thought that for 12-18 months our real interest rates were very high and I have no regrets about having that view that interest rates were too high. Everyone accepted that the inflation forecasting framework was consistently getting it wrong and one sided and by large magnitude. For about 12-18 months our interest rates were too tight.

Now the question is should that have been expressed in public or not, people can disagree on that. I believe in a theory of change which says that you must be honest and give opinion in private, but sometimes if you think you can bring about change by expressing it in public it should be done very sparingly, very responsibly but it should be done if you think it is going to bring about the outcome so that is one.

Now I think the circumstances have changed completely and I actually think I would commend the RBI for the way it has handled interest rate, exchange rates, use of reserves in the latest bout of turbulence.

My views are completely consistent then, growth was slowing down, we have spare capacity, inflation was down, external environment was settled and capacity utilisation was low.

Now all of these things have turned. Growth is picking up, inflation is higher, we are under pressure from outside events so your monetary policy has to change accordingly. So, what I said then about the RBI I stick by and I would also like to commend the RBI for what is has done in the last few months.

Q: How much of a concern or a challenge is the fact that we could potentially be seeing higher interest rates from hereon and the impact on growth?

A: We turned these things into the simple trade-offs between inflation and growth. Remember that at some level we have an inflation targeting framework or rather we believe in relatively low and stable inflation because we think in the long run that is actually good for growth.

So, these trade-offs that we often possess in the short run are I think overdone. If for example, inflation is going to go to 5 or whatever, I think you have to take action to bring it down. Remember in the old days, I have heard former finance ministers express this iron law of political economy in India that if inflation goes beyond a certain threshold level the population reacts, the public reacts and that is also the political logic also for having a target of reasonably low and stable inflation.

So, if inflation is going to go up we have to take action and if that requires higher interest rates so be it but I don’t think therefore you would say therefore it is a trade off because if you bring it down you create this circumstances for more stable long run growth and higher long run growth.

Q: Since we are talking about RBI, let me ask you about an idea that you presented in the economic survey but was not taken forward and that was using the RBIs excess capital of then Rs 4,00,000 crore, is that something that you hope will be taken forward at some point?

A: Absolutely.

Q: You believe it still holds merit?

A: I have revised my opinions on a number of things for example the bad bank. I also think that I forecast oil prices not going above $60-65, I was surprised by that but on this I think I am reinforced in my view that this has to be an essential ingredient of whatever the blueprint for reform for the banking system as a whole going forward.

I have said this before, if you look at a post global financial crisis, one of the things that has been really striking is how much central banks have been bold, imaginative in bringing their balance sheets to the assistance of the economy, I think the Fed did it, the ECB did it – buying all kinds of assets which they thought at that stage were dubious marginal assets, they did that, allowed that to be used as collateral and I think therefore if you have a strong balance sheet, that should be brought to the assistance of the banking sector reform.

Q: By way of recapitalisation?

A: That is the idea we had then. The debate at that time and Raghuram Rajan and myself spared in public on this, I think it was conservative central bankers – I think the popular narrative was conservative responsible central bankers versus irresponsible finance ministry officials but if you look at where central banking is headed now, that idea of excess reserves seems boring and conservative by the modern standards of where central banking is heading.

Q: What else have you disagreed with Raghuram Rajan over?

A: We spar all the time.

Q: Let me ask you a simple yes or no question, were you consulted on demonetisation?

A: This is something that we will leave for the historians. It is not even an interesting or a relevant question any more. As I keep saying, I think at one level when people ask you about demonetisation, I think there are three possible responses to this question, one is to say like the millennials might say, “it is so yesterday.” The other would be that it is too early to tell or there is the third response which Dr YV Reddy said that you check into a hospital after giving your views on it, so all three responses are possible.

Q: Let me talk to you about an issue that is relevant today – agriculture. You have spent a lot of time talking about it in the economic survey and you have said that it is a new challenge that requires the new way of thinking. I think it would be fair to say that perhaps the government has underestimated the problem and the distress that the agriculture sector has faced. Do you believe that this is an area that has been a significant missed opportunity?

A: Agriculture has surprised me a quite a bit. I think that in the first two years of the government we had droughts and farm incomes were stressed. Then in the next two years when monsoons were relatively better and production went up I thought frankly that agriculture incomes would improve.

But that didn’t happen at least outside wheat, rice and cereals there was such downwards pressure on agricultural prices, so we had this odd paradoxically situation in India that regardless of our agriculture does in terms of output and production farm incomes remains stressed. So, we need to understand this better why this is happening, I don’t fully understand. But it also kind of little bit reinforces my view that we need fresh approaches to agriculture.

Q: Higher MSP and farm loan waivers in not going to do it any longer?

A: For example, more like direct benefit transfers, what I call quasi universal basic income. We need to think more creatively about these because all the time we try and help farmers through indirect means whatever they are, but I think the time has come to see, given that we have now more and more the JAM (Jan Dhan-Aadhaar-Mobile ) in place why not think about helping farmers directly which has lots of benefits.

You can decouple production from income. You can reduce this distortions by way of subsidies and so on. We need to think more creatively about and the help should be more direct so that farm incomes can be directly boosted. We need to think much more about that and we need it as I have said and Mr. Arun Jaitley have also said we need to do it in a cooperative federalism framework because it can’t be done by anyone Centre or the state. We have to do it together.

Q: Since we are talking about cooperative federalism, let me talk to you about the GST and that is something you have spent fair amount of your time on and even though the rate structure that you had designed was not finally taken forward, but we are talking about meeting on the July 21st and I was just taking a look at what the Fitment Committee is actually going to be looking at. Reduction or exemption for marble and stone deities, bamboo flooring, sandstone, brass kerosene, pressure cookers, I get why we need or why the government feels why we need five rates but make it has complex and complicated as it is today do you believe that this was not necessary?

A: What you are saying is absolutely right. I think the way I would put it is the following. There has been too much debate on whether there should be one rate or not one rate.

We can’t have one rate, we have to accept that. We should have a debate on why can’t be limit it to just three rates. That is where the debate should be and that is where we should be headed. We have one standard rate, one for all the de-merits goods and one for all the other goods.

Q: But now we are talking about the possibility of another cess. I mean sugar cess has been discussed, finally no decision has been taken just yet and states are opposing it because today you have bring in a sugar cess tomorrow Kerala will ask for a jute cess or rubber cess or whatever the case may be, so where do you draw the line?

A: GST council should get credit for not making things worse with another cess. I think at least give them that credit. I think the 28 percent slab will be pared down over time. But overtime as the revenue stabilise, we should be having this discussion of how soon can we get to see three rates. We should be having that debate.

Q: Of all the ideas that you have out forward, which one do you feel has been the most effective, outside of GST because we have just finished discussing that which one you disappointed that it didn’t get taken forward.

A: It is like asking to choose between your children. You have many children they are all very valuable. I just want and I do feel that what is important for someone like a Chief Economic Adviser obviously what gets taken up and implemented is immediately satisfying. But I don’t think that should be the yardstick.

I would like to go back and many years later reflect and did we, my team and I and all those we worked with did we infuse the intellectual ecosphere with a bunch of ideas which permeated system and which became the reference point for discussion. I would say twin balance sheet now everyone talks twin balance sheet, JAM it has become whatever, universal basic income, in some form or the other is doing, stigmatise capitalism is becoming part and of course the surveys and so on.

I think I do think that many things we try to do as long as these form part of the discussion of ideas going forward, I would feel extremely gratified. I think there were also areas where we were not successful for example fertiliser sector, I wish we could have done more, agriculture also I wish we could have done more but overall the job of chief economic adviser is just analysis, ideas, elevating the discourse and if we have been even remotely successful on that I would be most gratified.

Q: I will end by asking you about the government’s move on lateral entry. I remember you said at an event few days ago that you and Raghuram Rajan would might want to set up a club to advice people on how they can potentially work with the government? What would that advice be or did I get that wrong?

A: No, I didn’t say that. I said that very simply that I am all in favour of lateral entry. I think Indian government needs all the talent and skill and expertise it can get, doesn’t matter where it comes from internally in government, private sector, public sector, internationally I think we need all the talent we can get and therefore it is a great idea having lateral entries. After all I am a lateral entrant myself and I can’t kind of not support this idea of lateral entry as well.

What I was remarking on is the notion that has somehow Raghu and I needed to embellish our CVs and view this has some kind of we come here to embellish our CVs.

I probably will never have a job as exciting as this one. Maybe for my next job I will have to de-embellish my CV because it can never be as good as this and people might think me over qualified for anything else that I apply for.

Q: P Chidamabaram the day that you put in your papers did an interview by with me and he said that he had offered you the Chief economic advisor’s job but then the UPA was almost at the end of its tenure and he realized it perhaps wasn’t the best thing to do. But he said that I hope he gets an opportunity with the future government. Would you consider one if it did come your way?

A: This is not a matter of government. As I have told the minister, all my colleagues in government that if they want policy advise I will be only to happy to provide it.

I will probably provide policy advice even if I am not asked to provide policy advice so I will always be thinking about India and Indian policy no matter where I am. So I may be physically leaving India but India is not going to leave me.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

As ‘foreign’ economic advisers leave, a protectionist India returns

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

When Indian Prime Minister Narendra Modi took power in 2014, he leaned on three Indian academics who had predominantly worked in the United States to drive a liberal, globalized economic policy.

Now, as Modi faces a tough general election next year to retain office, the last of them has quit.

At least a dozen government officials, policy advisers and members of the ruling Bharatiya Janata Party (BJP) told Reuters that policy making has mostly been handed over to Modi’s own office and to a coterie of right-wing and nationalist economists.

The departures of the three economists underline the administration’s rejection of free trade and open market approaches to policy in favor of protecting domestic industries and farmers, officials and academics said.

Modi’s economic outlook is now a throwback to India’s inward-looking policies of earlier years, they said. And it appears similar to US President Donald Trump’s agenda to support domestic industry, raise import tariffs and put restrictions on foreign companies, they said.

A spokesman for the finance ministry declined comment.

The prime minister’s office did not reply to requests for comment.

Raghuram Rajan, who was retained by Modi as governor of the Reserve Bank of India in 2014, left when his contract ended in 2016. He returned to the University of Chicago, where he is a professor.

Arvind Panagariya, vice chairman of the Niti Aayog, a government policy think tank, quit in 2017 when his sabbatical leave from Columbia University ran out.

And last month, India’s chief economic adviser Arvind Subramanian, who was formerly with the International Monetary Fund, announced he would quit to spend more time with his family and in research and writing.

“We expect that with the exit of Arvind Subramanian, the Modi government will listen to domestic experts,” said Ashwani Mahajan, head of Swadeshi Jagran Manch, a nationalist group linked to the Rashtriya Swayamsevak Sangh (RSS), the ideological parent of Modi’s BJP.

“The country would not lose anything if these foreign economists leave the country,” he said. “Nation building cannot be done by people on sabbatical leave.”

India’s problems had to be understood by advisers “connected to the soil”, he said adding that development in domestic terms meant providing basic necessities, health, education, housing and a reasonable amount of assets.

The Manch is critical of opening up the economy to foreign investors, and has opposed government plans to privatize loss-making national carrier Air India and the acquisition of e-commerce firm Flipkart by Walmart (WMT.N).

The privatization of Air India was shelved last month for lack of bids. The Flipkart-Walmart deal awaits the approval of India’s anti-trust regulator amid strong protests against the acquisition by bodies representing small shopkeepers and traders that are affiliated with the BJP.

Subramanian did not respond to requests for comment on this story. Panagariya and Rajan have declined repeated requests for comment on the circumstances in which they left.

No replacement for Subramanian has been announced so far, but in recent months, right wing advisers, associated with the RSS, are gaining more space within the government – pushing their agenda of imposing taxes on imports, stopping privatization of sick companies and of banks.

Like many Western economists, Rajan and Subramanian advocated privatizing state-run banks, cutting state subsidies and easing rules for foreigners entering the retail sector. But most of these suggestions were not implemented.

Panagariya had favored allowing genetically modified (GM) crops into India, which has been strongly opposed by many lawmakers from the BJP, who say they are a risk to the environment and public health and also lead to exploitation of small farmers because of repeated payments to seed manufacturers.

“HELICOPTERED” IN

Rajan was replaced in 2016 by Urjit Patel, who has worked in Indian banking for two decades, and Panagariya by Rajiv Kumar, an economist who has been based mainly in India, except for a stint at the Asian Development Bank in Manila.

“Those who have networks in the system, those who understand the ground realities of this country, also know how to push those realities towards the change,” Kumar said in a 2017 TV interview after taking over at Niti Aayog.

“But the others who come … helicoptered from other places, those people, I am afraid are unable to make the sort of positive impact that you want in this country.”

Sanjeev Kaushik, a senior finance official in Kerala state, who had earlier worked in the federal finance ministry, said policy-makers needed to have finance or banking experience and not “mere theoretical expertise.”

“Our banking sector is suffering today because of insufficient awareness of operational consequences of regulatory action and lack of calibrated administrative response to a bad situation,” he said.

Kaushik declined to name anyone but said the economy was in a mess because of “foreign-trained” professors with little field experience.

Several officials in the ministries of finance, commerce, industry and agriculture said unlike the previous government led by economist Manmohan Singh, Modi had little patience for “policy debates” and looked for actionable advice – mostly given by a few bureaucrats and local economists.

They said Modi has given charge to senior bureaucrats in his office to push and monitor key policy issues including raising of import tariffs against US companies, putting price controls on medicines and “politics driven” bail outs for the farm sector.

Earlier this month, India announced it had raised the government-mandated price for summer-sown crops such as rice and cotton by the most since Modi came to power.

“BACK TO PROTECTIONISM”

A senior official who has worked with Subramanian said he was largely isolated by finance ministry officials although he enjoyed the confidence of Finance Minister Arun Jaitley.

But Jaitley has been ill for several months and has not been attending office as he recovers from a kidney transplant.

The official said Subramanian was kept out of the loop when Modi suddenly demonetized high-value currency notes in 2016, and that the adviser’s recommendation to privatize some state-run banks was rejected.

“This government is not ready to listen to any independent voice and only wants yes men as its advisers,” the official said.

This makes it easy for local politicians and lobby groups to push their agenda ahead of the national election.

Gopal Krishan Agarwal, BJP spokesman on economic affairs, said the Modi government was consulting party advisers and the RSS for key initiatives, including withdrawal of a proposed land-acquisition law and simplification of the goods and services tax. Farmers and small traders, the two sections most affected, are considered political vote-banks of the BJP.

“The government is now acting on the suggestions given by the party and the Sangh,” Agarwal said.

“It is the political will of Prime Minister Modi, not the advice of consultants which is pushing Indian economic growth.”

Rating agencies have cautioned India about the risk of rising crude oil prices and a widening fiscal deficit – seen at over 6 percent of GDP collectively for federal and state government. But with nationalist advisers at the fore, populist schemes will likely prevail, economists said.

“It is not Subramanian so much as the return of a certain kind of economic thinking which informs our policy making,” Yashwant Sinha, a former BJP finance minister, said in a television interview soon after the resignation of the economic adviser.

“We are going back to protectionism in our own way.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Feel that 21 public sector banks may be too many, says SBI Chairman Rajnish Kumar

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

After government said that there is no proposal for consolidation of government banks at present, country’s largest lender, State Bank of India, on Wednesday said that 21 public sector banks may be too many and there is a need for some consolidation.

Speaking to CNBC-TV18, Rajnish Kumar, chairman, said there must be a mix of large banks and niche banks in the country.

Watch:  Need a strong asset management company, not an asset reconstruction company, says SBI Chairman Rajnish Kumar

According to Kumar, public sector banks are capable of making a comeback and have a critical role to play for the next few years.

He also said that banks and bankers need the confidence that decisions made on commercial grounds be protected and any action taken against them should be only on decisions taken with malafide intent.

Edited Excerpts:

Let me start by asking you about a development that has taken place today and that is the Chief Economic Advisor (CEA) Arvind Subramanian resigning for personal reasons. Now, two of the ideas that Arvind Subramanian had spoken about, one was a public asset rehabilitation agency for the lack of a better word it started to be called bad bank that was not taken forward and that idea in some form of fashion seems to be now back on the table in form of this national asset reconstruction company (ARC) or asset management company (AMC). I know a committee has been set up headed by Sunil Mehta, the PNB chief, to look at how this can be taken forward. How is this different from the idea of a bad bank that most people understand?

I think, the best is that we wait for a few more days, when the report of the committee comes out. Because, it’s comprehensively looking at all the issues. But yesterday, if you had heard the finance minister saying that, definitely we are not looking at setting up any bad bank. That he has clarified. So, the situation today is that there are a couple of ARCs and it is also not about setting up a new ARC. But there are various models available where it has been felt that we definitely need a strong AMC. The country lacks one. There are funds who have their own AMCs. But an AMC, which can manage, say for example, the assets in the power sector, it required specialised setup to manage these assets, if it was decided that we don’t want that they be referred to National Company Law Tribunal (NCLT) and there can be a resolution even outside the NCLT framework, because many of these assets there are power purchase agreements (PPA) available, even there is a fuel supply agreement. But still, they are not operating at the full capacity.

So in such a situation, if banks decided that these assets definitely need to be taken out of the banks books and we need a very strong agency, who can vanish these assets and that would mean the operators likes of say NTPC, or it can be Tata Power or it can be Sembcorp. There are couple of agencies who have the experience of running the large plants. The idea is that within two years or maybe even earlier, we may see a situation, where the demand for power and the generation capacity would be fully matched or rather there may be a shortage and at that stage, the value of these enterprises will be much higher when if banks do any distress sale today. So, this is a whole concept.

Is my understanding correct from what I hear from you that the priority at this point is to address the assets in the power space and so this ARC or AMC as and when it is taken forward will address these assets to start with?

May be that would be the good beginning point, but the idea ultimately would be that we have the capability to manage the stressed assets. Currently, the ARC structure, which is existent in the country, I am finding that structure is missing. So the requirement is not as much for an ARC, it may be, but there is definitely a requirement in the country for having an AMC.

You are saying not so much an ARC but in AMC- an Asset management company.

Asset management company and the alternate investment fund. The possible structure could be AMC, AIF and ARC. But these are all the thoughts, because these are coming from various people who are in the stressed assets resolution. Mehta, who has been appointed as the chairman of the committee to look into all this, he is consulting all the people including the existing ARCs that what should be the way forward. Because ultimately, the whole objective is that there are assets which can be resolved. An identification of those assets and then make a serious attempt to resolve those assets.

The chief economic advisor (CEA) had brought up this issue, this idea of a public asset rehabilitation agency and he had basically articulated it simply to suggest that politically tough decisions that are not possible to be taken will be taken by this agency, that will address stressed large assets so to speak. If it wasn’t though to be viable then, why is it on the table now, why is it now a viable solution to look at?

Let us not prejudge the issue, let us wait for about a week or ten days, when the committee draft report is ready. It has been discussed and some final recommendations have been worked out. It is idea only under examination at this stage, there is no final conclusion, no final decision.

The point is that this was an idea under examination for a while. So, if it wasn’t thought to be viable then, why is it being thought to be viable now?

What I am saying is that, if you ask me as a State Bank of India, I has certain assets and there are assets in different categories. They are assets, which we believe that can be resolved. There are certain assets, which we believe cannot be resolved. So, I have not studied in detail the concept, which was put by the CEA. However, whatever will be done or is proposed to be done or whatever will be our suggestions to the committee, it would be that everything will be within the regulatory framework. There are existing regulations, there is a framework, which has been given by RBI, as late as February 12. Earlier also, there were rules and regulations around how the ARCs work, how the alternate investment fund works and there are Securities and Exchange Board of India (Sebi) guidelines. So, whatever are the regulatory guidelines and the law, within that law, there is a need felt for someone, who is specialising in resolution of assets, which currently as a bank I believe is not happening.

As and when we see the recommendations of the Mehta Committee being submitted to the government and you expect them in another week or 10 days, what is a realistic timeline if the government were to go forward with either and ARC or an AMC, you prefer an AMC as you just told us but what is a realistic timeline of setting this up and getting it going?

That will also come within that report. The government is only acting as a facilitator in the whole thing and it would be a collective wisdom and effort of all the banks. As I said, no new legislation will be required, probably no new guidelines will also be required. So, it will be all within the existing framework.

So, if government plays facilitator, what about funding? How much will banks have to contribute to this AMC?

That is what will be decided. Whatever is done, there will be definitely be an arm’s length between this AMC or the fund and the banks. The risk appetite of all banks is different. Second issue, it has to be very clear that this AMC works at arm’s length from the existing banks and their stressed assets. If suppose, I want to invest today as a State Bank of India in a special situation fund, what is my risk appetite, what is my investment policy about these investments, that will determine who much I decide to put in there. Today, the difficulty is that if there is a stressed asset and there are 26 banks dealing it, even building a consensus around that itself is difficult. So, if that consolidation can happen through this route, then the decision making itself will be much faster and the responsibility for running the assets will shift.

What about pricing of these assets that this national ARC or AMC will take in?

As a banker, my take is that it has to be a transparent discovery of the price. There are methods available through which you discover asset, it will not even be mandatory for any bank to necessarily park assets with the new AMC. So, you have to discover price in a transparent manner. Whatever the recommendations would be, it would be all within the existing regulatory framework.

Since you are saying that there will be no need for any new legislation, no need for any new regulation realistically, how long before we can actually see this take off?

Take off maybe, I think, it can be done very fast, because there are various options again. So, it can be very fast, but when do we see the first asset being transferred to the new AMC, it may take minimum three to six months.

Three to six months before we actually see an AMC being operationalised. Since we were addressing the power issue and you said that you believe that maybe the stressed power assets will be the first to move to this AMC as and when it is operationalised. There is another meeting that will take place of the government with power sector stake holders tomorrow. A meeting that was scheduled today of the parliamentary standing committee has been postponed. We don’t know what the government’s response is eventually going to be to the Allahabad High Court order. Where do things stand as far as the power sector is concerned? The SAMADHAN plan, what is the current status?

There are several elements to SAMADHAN, which is a plan which was thought of by State Bank of India and there are various steps. So, they all are in progress including determining the sustainable debt, technical evaluation of all the plants by the NTPC, so all that work should be done within this month. That is what we are expecting. There are not many plants, we have identified only 11 and out of which nine seems to be the prime candidate for this resolution plan.

In any case, secretary, department of financial services (DFS), has been entrusted this task by the Allahabad High Court, so he will do his process and I am sure that he will be conveying the meeting in next couple of days, where again the views of all the stakeholders including the independent power producer who have gone to the court, the secured creditors, lenders and the discoms. So I think, he will be consulting widely with all these people and will able to finalise his recommendations and give it to the Allahabad High Court.

Obviously you cannot pre-empt what the government will chose to respond to the Allahabad High Court order. Let me ask you, since you spoke about these 11 stressed assets. How confident do you feel given the current context both in terms of power demand which is picking up as well as the supply constraints that we are faced with both on coal as well as the gas side that things are going to improve?

One is that, in this list there is nothing gas based. They are all thermal. They all are completed projects and they have PPAs either full or partial. But they are not operating at the full capacity, so that is why when the list was picked up and there was certain criteria and we have not touched any pant, which is say incomplete. We are not trying to attempt to revive it or resolve it. These are the plants, where we believe that with little bit of help, some support from the distribution companies, some forbearance on the part of the banks, again I am saying that everything we planned is all within the existing resolution framework and existing regulatory framework.

The only thing is that the Allahabad High Court have stated that February 12 guidelines of Reserve Bank of India (RBI) for this power plants. So, we have to see that when Secretary DFS submit his report to Allahabad High Court and what are the directions of the court. But these plants, the lenders believe that because they have PPAs and if they go to NCLT, there is potentially the economic loss will be much higher. When any generating company goes to insolvency, there are issues around even the existing non-performing assets (NPA), whether they get terminated or remain valid what would be the action of discoms under those PPAs, so the whole thinking and idea is guided by this fact that we should not allow value destruction.

Let me ask you a broader issue as far as NPAs are concerned and again it takes me back to Arvind Subramanian’s economic survey, where he identified the twin balance sheet problem or maybe at least put the governments attention firmly on the issue of the twin balance sheet problem. Quarter after quarter, bankers say NPAs have peaked and we are headed for better times now. Let us just take a look at where things current stand – bad loans have topped Rs 10 lakh crore, PSUs have written off Rs 1.2 lakh crore in FY18 versus Rs 81683 crore in FY17. Even for SBI, in 2017-18 you have recorded your highest NPA seen in over a decade. Is the problem really at its peak or is the worst yet to come?

As far as the NPA is concerned, I am firmly of the view that it has peaked. The level which has been achieved or which we have reached as on March 31, 2018 is the highest level. From hereafter, NPAs would start coming down. This is not what I am saying or any bank chief is saying, even if you look at all the reports of any rating agency or any analysis being done by anyone, they all have convergence on this point of view that from hereafter, the NPAs have to come down. I alone have Rs 78,000 crore of NPAs in NCLT one and two. If you look at the 180 days timeline, extended to 270 days, and even extended beyond 270 days, but by March 2019, all these have to be resolved one way or another.

Whatever we are able to recover, we recover. Whatever we cannot recover through this process, that is still to go out of the books of the bank. So, if my NPA was Rs 2,23,000 crore in March 2018, straight away Rs 78,000 crore has to go out of this by March 2019. This is all NCLT one and two alone. There are other accounts, where we will making recoveries. The gross slippage, the guidelines which I gave at the time of our earnings calls – it was about 2% of my advances portfolio, which is about Rs 40,000 crore. So, ultimately for SBI, there will be reduction in NPAs. As we are the largest in any manner, in anything including NPAs, so if that is the situation, with most of the banks that should hold true. So, unless something which we can’t foresee or I cannot foresee, if that something happens, then it is a different matter. But whatever I am seeing, it is based on the complete analysis of the loan book of the bank, the existing NPA, their recovery prospects and the fresh accretion of NPAs.

So, unless and until we see some black swan event, you believe that the trajectory should move lower from hereon?

Yes, at least from the gross NPA perspective. Some pain will still remain on provisioning front as the situation is different for each bank. For example, we have a provision coverage ratio of 66%, where we include our accounts under collection, which is below the line accounts and 50.5% on the Rs 2,23,000 crore. So, I would like this provision coverage ratio to go up. So, it means that maybe the profit and loss statement (P&L) will take one or two quarters more, because if I want to increase the provision coverage ratio, we will be more aggressive on provisioning. So, NPAs will come down, provision cover should go up, that is the trend I am foreseeing. So, the impact on P&L, that will be maybe for a quarter or so. It will be still there, because if 50% I want to take it ultimately to say 60%, I am looking at 10% more provision on the existing stock and whatever stock comes in there also, I would like to provide at a higher rate. So, ultimately if a bank’s performance like SBI or for any bank has to be seen, then it’s to be the strength in the balance sheet and not what profit you are declaring in June or what profit you are declaring in September.

So aggressive provisioning is expected over the next at least two quarters is what you are saying. On the NCLT and the IBC process, you talked about the first list as well the second list. We have seen those timeline extensions already but it looks like because of litigation etc. this process is going to be extended even further. A- is that concern for you? B – Really in terms of recovery how confident you feel outside of sectors like the steel sector for instance of being able to get anything that would be seen as value maximisation from a banks perspective?

Steel of course, because the sector outlook is so positive and fundamentally the assets, which were created they are very good, otherwise they would not have got as much value. But each asset is different and the realisation depends upon each asset one – what is the asset which has been created in terms of physical infrastructure. Second, is about what is the outlook for the sector. Because ultimately, any buyer, he will pay on the basis of what is the future earning potential for that asset? How much investment they have to make to improve the asset, so it is a very complex situation in respect of each asset. So there cannot be any thumb rule what so ever.

Ultimately, there is an asset which is available, it is available to anyone who wants to bid it. They will make their own assessment, but the major advantage of NCLT is that it takes into account or consideration the interest of all these stakeholders. That again and again Sahoo, Insolvency and Bankruptcy Board of India (IBBI) chairman, has also clarified. I have also clarified in several interactions that it should not merely be seen as a recovery for the secured creditors. It should be seen as a ways and means of reviving an enterprise keep it running because once an enterprise goes down under there is a huge ecosystem around it which also collapses. So, it is in nobody’s interest that an enterprise go down. It is in everybody’s interest that the enterprise value is protected or enhanced as much as possible.

That is where NCLT because, there are rules, there are rules around how the money would be shared, what should be the process and it has judicial scrutiny. So, I believe that this is a fantastic process. All countries follow it. Absence of it was being felt in the Indian financial system. So now, once we have this law, it is everybody’s responsibility to ensure and see that it works well. There have been recent amendments in the court again based on the experience so far. Certain rules are also to be drafted to ensure that the timelines are adhered to.

But I would not be unnerved, because it was first year and litigation in any case was expected. But as the law starts getting settled through amendments, wherever required based on the experience.  The seriousness with which the government also has shown in the matter to ensure that the process stabilise as quickly as possible and the objective behind is fulfilled. I am quite optimistic, but as I said that, whether it is a contradiction where I am saying that power sector, I don’t intend to take certain assets to NCLT, so it is not an contradiction. So, banks or as a lender, we have to look at both of the options very carefully and if there is a possibility, that enterprise can be preserved or will give higher value outside the NCLT process, first, we should try that process.

Do you see, I mean you spoke specifically of the power sectors as a sector where you would like to stay outside of the NCLT process – nine, so that is a significant number out of the 11 identified stresses assets. Would you consider this option for other sectors as well?

Yes, very much and that is what the RBI framework also says, that in 180 days there may be debate around this, that whether 180 days is sufficient or one year is sufficient or 270 days is sufficient. But for large accounts like Rs 2,000 crore and above, what does the RBI circular says that in 180 days, if you can find a solution, which the lenders believe is better then implement it and if not then the NCLT route.

Today you feel confident that you will be able to take these nine stressed power assets outside of the NCLT for a resolution?

Today, I won’t make such a confirmed call, because still lot of work is going around that. Maybe, if you ask me this question three weeks down the line, we will have some clarity on this, today it will be pre-judging the issue.

Let me then talk to you about another issue and you have made a presentation to bankers in Mumbai and you made a presentation in Delhi as well, articulating your experience of consolidating the banks that you have been able to bring under your fold. Is it realistic to expect that, that can be extrapolated as the experience that other banks will be able to enjoy as well? Second, is this the right time to look at consolidation because most people that we have spoken to say that while it may be inevitable, this is not necessarily the right time given where banks find themselves as far as NPAs are concerned. So, why merge weak banks into weak banks and make a bigger weak bank is the argument against the idea of consolidation today?

Who said that there is any proposal to merge a weak bank with a weak bank? I don’t know from where this hypothesis is flowing. We have the tendency to pre-judge every issue. Last year, we merged six banks, five of which were from the same family. So, the experience which was for these five banks with SBI, it is not the same experience for other banks. However, what are the benefits, how it was done, what are the issues to be looked at, the presentation which was made was only to share that experience. This is what you always keep on doing that, if somebody has done something successfully just share that idea. After that of course each and every situation will be different.

I am not suggesting that the idea is to merge weak banks with weak banks but the industry as a whole finds itself in a difficult position, so given that context is consolidation the best way forward? Again it has not been decided will it be geographical consolidation that we are likely to see, region specific consolidation we are likely to see. What to your mind should be the way of looking at this? Whether this happens now or six months down the line, a year down the line, we don’t know but what should be the way of looking at this?

The one way to look at this is that do we need 21 public sector banks, that is the first question. So, unanimously bankers feel that maybe 21 are too many.

What is the right number?

There is no right number but 21 is too many. So, that much is consensus. What is the right number? That is something which needs to be decided. Running a bank in today’s environment, where the requirement of compliance, regulation, technology, capital and the owner is same. The capital is not unlimited, that capital gets fragmented, so is this the best optimal way of using a resource which is scarce? Technology, it requires lot of investment. Is it possible for smaller banks to not have technology and compete in this market or if they want to have technology, do they have the resources, management bandwidth to compete with likes of what is emerging today? The banks are becoming less of banks and more of technology companies. So, these are some of the broader issues.

When we look at it then, the path which comes out is that there is need for some consolidation for sure. The objective also has to be very clear, that we need a few banks, at least four to five banks. This was said by Narasimham Committee in 1995, that there is definitely a need for four to five big banks, who have a certain scale and who can meet the needs of the economy, which is growing very fast. The ambition is to be one of the largest economies, we should need to grow more than 8%. So a fragmented banking system cannot do. However, I am not saying that there is no scope for niche banking. Worldwide the experience is that in every country, you will have very large banks and then you have niche banks. So, it has to be mix. Our country is such a large country, we are 1.3 billion people, so I will always say that there is a scope for everyone. So, either you have scale or you have a niche, but cloning each other is no more an option. So, this is what the whole hypothesis is about, rest is all the matter of detailing.

In terms of detailing, again I ask you this what would be realistic to expect. I mean you said no decisions have been taken. But in discussion where do we find ourselves today. You said there is consensus on the fact that 21 public sector banks are not needed. Are there any other thoughts and ideas on which there is consensus on the way forward?

My role ends here.

The rest is up to the government?

Or the banks. We are not advising anything like we put this way. What we have done is that only the experience sharing of state banks merger and how it has been done. Merging five banks was not an easy task, even if they were part of the same group. So, that is only an exercise, where you share your experience and after that at that point state bank or my role ends.

And the government’s role begins. But let me ask you two specific questions since we are talking about the road ahead for PSBs. Market share what is down by about 5.5% in the last 10 quarters and a lot of people argue that there is malign neglect, when it comes to the public sector banking and the private sector banks are basically walking away with market share. In the current context, do you expect to see a recovery as far as market share is concerned? I mean forget consolidation, but in a business as usual environment do you really expect a recovery and improvement as far as market share is concerned?

I have a feeling, because last two years were particularly were very challenging for all the public sector banks and quite a few private sector banks also and in that process. The non-banking finance companies (NBFCs) have been able to do very good business and some business has gone to the private sector banks also. But public sector banks in my view, they will be and are capable of coming back. The process of whatever I have read in the newspaper and whatever is available in the public domain, government is very serious about appointing the high quality professional on the boards of the bank. They are in the process of filling all the vacancies. So that in my view, is the first step that let us have professional boards, let us have professional management and then they chalk out their plan.

Government yesterday again, I am quoting the finance minister, who has very categorically said that government is firmly behind the public sector banks and they will support all banks. But for that support, the banks will also have to do something and that is what is required, But the public sector banks have a very critical role for some more years to come and they will do that.

Let me ask you about capital requirement? I mean some experts suggest that in excess of Rs 2,73,000 crore to meet the Basel III norms etc. will be required. We have seen what the government is been able to provide by way of the recapitalization. Again that idea that was once was floated not taken forward the possibility of a holding company, has there been any conversation on bringing back that idea just like we brought back the ARC idea and the AMC idea?

No, I am not aware of that. As far as capital is concerned, there will be definitely multiple sources. One, all the banks in my view should be returning to profitability. Second, is they have their own internal accruals, all the non-core assets, all the banks are having a serious look and whatever they can offload, they will be offloading. So, whatever are the means available for the banks to internally raise the resources, so they have to act very systematically towards that and plus government support, budgetary support whatever is available, so this one will be a big infusion an Rs 65,000 crore. The numbers which you are saying is maybe about five year period or something like that. I am sure that each bank would have drawn their recapitalization documents. We have done for ourselves and we should be able to meet the capital adequacy requirement. For SBI, it is much easier, other banks who are below that threshold level for them, the government support is required.

I will end then by asking you, yesterday the finance minister Piyush Goyal said that there is no witch-hunt and that the government supports public sector banks and they should have no difficulty in lending. But on the ground what is the reality? Is there a feeling now that the decisions that will be taken today that maybe purely commercial decisions that may go bad tomorrow will be seen a mala fide and hence there is a hesitation and apprehension to lend and secondly we have also seen the economic offenders bill being cleared, the ordinance being cleared by the government. Beyond the much publicised Mallya matter are there any other cases that are likely to be taken forward under that new ordinance?

Of course, there will be. Under the new ordinance, whoever is culprit within that ordinance definition, so I am sure that the agencies will pursue that. But as far as the bankers are concerned, there is definitely a concern amongst at all levels. But yesterday’s word were very reassuring that the bona fide decisions will not be questioned but we have to see in practice what happens.

So, there is fear today in bankers when you are signing off on loans?

Not as much. I don’t think that the business has stopped, but in terms of processes also, we have taken steps to ensure that the processes are such that individuals remain protected. So, certain things we need to do within the bank and definitely there should not be any witch-hunting, that is where the assurance has come from the finance minister. However, it is a very sensitive issue, like how do you determine what is wrong, what is right. But still the bank and the bankers, that confidence is required that if the decisions are purely on commercial considerations and there has not been any malafide or quid pro quo, those decisions should be protected. Before any action is taken, it should be thoroughly examined that only on those cases, where there is a evidence that there is malafide, then it is a different matter, each individual is accountable to the organisation in which they work, to the government, to the society. So, that accountability cannot be taken away, but definitely there is no scope for witch hunt, if we have the confidence among the bankers.

I will end by asking you about governor Urjit Patel’s deposition to the parliamentary committee where he notes that there has been an increase in fraud over the previous year. What is the problem there, is it lack of processes, what exactly are the internal sort of systems, we saw that happen with Punjab National Bank but what do you believe is the reason why we are seeing an increase in fraud?

One is that there is a special committee appointed by RBI, so maybe we wait for their report.

What would your own assessment be?

My own assessment again, I am limiting myself to SBI. If we look at the analysis, which we have done internally, the frauds relating to operations – Nirav Modi is an exception – but in SBI fraud related to operations are under control. However, credit related frauds have gone up and that has gone up in consonance with the change in the definition, where the diversion of funds is now treated as fraud, that constitutes a significant portion and falsification of financial statements or fake title deeds, these three categories constitute a very large portion.

Better year for Indian banking?

Hopefully so.

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Arvind Subramanian calls Arun Jaitley ‘a dream boss’: Here are the main highlights from the outgoing CEA’s statement

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

In a two-page statement issued on Wednesday, chief economic advisor (CEA) Arvind Subramanian, shared his thoughts and observations on what he calls an “extraordinary opportunity” to serve the country.

Earlier today, finance minister Arun Jaitley announced Subramanian’s wish to move back to the US because of family commitments.

Subramanian, who was appointed as CEA to the Arun Jaitley-headed finance ministry on 16^th October 2014 for a three-year term, maintained that the role of the CEA is “a unique position,” and thanked the Finance Minister for his support, in fact, even calling him a “dream boss.”

Here are the main excerpts from his statement:

• Subramanian said that he and his team was able to “diagnose early the twin balance sheet challenge, and advocate the macro-economic strategy of a public investment push, beginning with the Union Budget of 2015-16.”
• Helped forge the consensus that led to the Constitutional amendment on the GST in the fall of 2016 through the report on the Revenue Neutral Rate, the statement said.
• Subramanian says he and his team helped conceptualized the Jan Dhan-Aadhaar-Mobile trinity.
• The outgoing CEA also said that he and his team initiated the fiscal and monetary olicy debates of the last few years along with providing frequent macro-economic analysis to the government and the Financial Stability and Development Council. Some of these debates contributed to policy reform in important sectors such as clothing, fertilizer, kerosene, power, and pulses
• Subramanian also said in his statement that he and his team has elevated the quality of economic analysis, advice, and articulation, especially in the five Economic Surveys, which according to him, are “widely read in India and across the world, and are now part of the syllabus in several universities and colleges.” In his stint as the CEA, Subramanian says he has pushed “new ideas such as: subsidies for the well-off, universal basic income, “bad bank,” climate change and the case for clean coal (“carbon imperialism”), “stigmatized capitalism,” “from socialism without entry to capitalism without exit,” the 4C Problem that has paralyzed decision-making…”
• In terms of building institutional capacity, Subramanian laid emphasis on mentoring young IES officers, building strong teams, better outreach efforts and leveraging the online platforms to disseminate the government’s economic policies.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow