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Rate cuts have not spurred investment: SBI Chairman

New Delhi, State Bank of India chairman Rajnish Kumar on Tuesday said that interest rate cuts had not led to an increase in investment, despite the banks passing on the rate cuts to the customers.

Speaking at the 47th National Management Convention of the All India Management Association (AIMA), Kumar said that credit growth had been slow this year as capex was not happening at the usual pace.

He pointed out that in the last crisis in 2008, banks had increased lending by diluting norms and the country had paid a high price for that, so banks were being prudent this time.

Infrastructure spending was the way to restore economic growth, according to the SBI Chairman. He pointed out that India has a 5-year pipeline of infrastructure projects worth Rs 10 trillion, which alone could boost the economy because construction creates jobs and demand.

Speaking at another session, Arvind Panagariya, Former Vice Chairman, NITI Aayog and Professor of Economics at Columbia University, said that India’s GDP growth has receded since 2018 because of high growth in the first four years of the Modi government, and to get back to a 7% plus growth rate, India must open itself to free trade and recapitalize banks urgently.

According to Panagariya, the Indian economy can tolerate 6%-7% inflation and the RBI should not be too obsessed with keeping inflation low. He said that higher inflation in the April-June period was because of a supply shock and it would drop as supply returns. The RBI should work harder to prevent appreciation of the rupee in order to prevent erosion of the value of India’s exports, he said.

For Panagariya, the most critical step required to bring the Indian economy back to a 7% growth trajectory is urgent and adequate recapitalization of banks. He pointed out that economic growth has slid in the past couple of years because of the stress in the financial sector which has filtered into the general economy.

“Restructuring loans will only delay NPAs and bankruptcies and not prevent those,” he said. The economy paid heavily for the delay in the Insolvency and Bankruptcy Code and a credit collapse will happen again if the problem is not addressed immediately.

The government revenue also needs to be restored to prevent a severe escalation of debt to GDP ratio, and that requires more privatization and monetization of government assets, he said.

On Atmanirbhar Bharat, Panagariya said that it was rhetoric meant only for the domestic audience, mainly farmers, and it merely meant people looking after themselves instead of expecting handouts from the government. However, he pointed out, the import substitution activity has been going on for three years, which is not helpful. “Keeping imports out protects disability of the domestic companies by making foreign competitors less able. Instead, India needs to raise its productivity and lower its costs,” he said .

Sanjiv Mehta, Chairman & Managing Director, Hindustan Unilever Limited, said in a separate session that the FMCG industry’s volumes had almost returned to normal, albeit the demand pattern had shifted almost entirely to the essential items and away from the discretionary items. He pointed out that rural demand had remained strong because of absence of lockdowns, good harvest and good rains. However, the local lockdowns in states had created problems in the supply chain, which has now been taken care of by the central government. Mehta said that now the economy needed interest cuts to start the investment cycle.

Sanjiv Bajaj, Chairman and Managing Director, Bajaj Finserv Ltd, said that the way to revive the economy was to prevent random lockdowns and keep the economy running with the necessary precautions. “It will take 2-4 quarters for things to normalize,” he said. He said that it would help to expand credit by opening 2-3 new banks each year for the next 10 years, and the distinction between banks and NBFCs had to go. “The incumbents cannot be protected forever,” he said.

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