When the UPA II was considering FDI in multi-brand retail, BJP leaders, notably the then leader of opposition in the Rajya Sabha, Arun Jaitley, had said “International retail mainly brings things from overseas, where it is cheap. In China, the interest rate is low, the cost of electricity is low, the infrastructure is better and the labour laws are better. China is believed to be the low-cost manufacturing hub of the world. So, it will be their things that will be sold in these stores. I have said it many times that these stores will belong to Europeans and Americans, the goods they sell will be Chinese, and India will become a land of salesboys and salesgirls.” It was the winter of 2012, and he repeated the remark in the Rajya Sabha during those years.
As the winter of 2017 approaches, the Congress has not asked whether now Finance Minister Jaitley, who, on October 24, announced huge allocations for building roads, expects to convert India into a nation of mazdoors. Incidentally, mazdoors have almost vanished from big construction projects that depend on huge machines, a few skilled workers and corporate staff to plan and monitor the execution of these projects. Other beneficiaries will be the big industrial houses manufacturing steel—if they decide to make it and not import the cheaper variety from China—and cement.
The recapitalisation of PSU banks groaning under the weight of NPAs was long overdue, and should have come way before demonetisation and GST rollout. The presentation by top officials of the finance ministry in the presence of Jaitley, did not satisfactorily explain how and why the medium and small enterprises (MSMEs) would avail of credit that banks could be ready to offer. Only when this credit is taken, will private corporate investment spending rebound meaningfully, and private sector growth be realised.
Consider this: there will be a “differential approach” with regard to recapitalising the 11 public sector banks. These will include their culture and ethos, and “prudence in offering credit”. So subjective are all these criteria, that banks that qualify to get the recapitalisation may not easily give out credit. They would, as the minister suggested, lay down conditions that will ensure there is no encore of this dirty NPA accumulation. This apart, there could be clauses that require the enterprises to employ a certain number of people, depending on the advances they get. For, the finance minister made it amply clear that the idea of all this was clearly job creation.
Experts, however, believe that the impact of bank recapitalisation, by its sheer magnitude, could lead to credit and investment growth rebound. Goldman Sachs Research Report on the Government's Ban Recapitalisation Program believes there could be a “re-rating of growth expectations in India in the coming quarters”, and also that there could be a deterioration in the fiscal position in the near term.
The report also points out that “a key risk from the infrastructure plan is the potential for a higher fiscal deficit to affect macroeconomic stability and inflation”.
If all this won't work, will this work?
As of now, that seems to be the attitude of the Union government, at a time when economic slowdown and joblessness are plaguing them, among other things. But, the government is not willing to concede that the situation is worrisome. More than half the presentation recalled all that they have done the last three years—strong economic growth, inflation brought under control, improvement of external sector indicators, improvement in merchandise trade, improvement in FDI, growth in foreign exchange reserves, fiscal consolidation, GST rollout, insolvency and bankruptcy code in place, demonetisation, housing development, infrastructure push, institutional reforms, and ease of doing business, to establish that nothing is wrong, and India is among the fastest growing economies in the world.
The path towards solution would necessarily have to start with the admission that there is a problem than needs to be addressed. The attitude is aspirational—hope that by some miracle the mood of the nation would be pro-BJP during the elections in 2019. But, if the highways materialise with private participation apart from public expenditure, ease of movement of goods, inadequate now, will be a happy result.
The finance minister has said they will unveil banking reforms in due course. The solution may actually confirm where, the government feels, the problem lay the last three years.
