ALSO READAus can assist India in improving skill development:Think-tank Hackers deface Lahore district government's website US says will take up Compassion International issue with India HRW voices concern over attacks on minorities in India UK MP calls on India to end demonetisation stress for NRIs
Bullish on India's growth prospects and reform agenda, ace banker Deepak Parekh has said the country is showing to the world that it is truly open for business while a major achievement of the current government has been to weed out large-scale corruption at the Centre.
Lauding the steps taken by the government for putting in place an e-tendering process for all procurements, Parekh said this transparent system with no human intervention has meant "that the days of inter-changing of envelopes at the time of bidding have finally been put to rest".
"One hopes that this government keeps up its unblemished record, but more importantly this now needs to percolate down to state levels as well," the eminent industry leader said.
Delivering a lecture here at the LSE Students' Union India Forum over the weekend, Parekh said India's macroeconomic parameters have never been more robust and it remains amongst the fastest growing major economies.
"One can quibble in decimal points on how much demonetisation could shave off GDP growth, but the bottom line is that India will still achieve a growth rate in the range of 6.6-7 per cent in the current financial year," he said.
On India being a 'superpower in the making', he said if one looks at superpowers from an economic lens, which seems imminently logical, several economic forecasters believe that by 2030, US, China and India will be the superpowers simply by virtue of being the three largest economies.
"Two years of good monsoons has helped agriculture growth and has kept food inflation in check. Lower commodity prices have helped India given that the country imports over 80 per cent of its crude oil requirements.
"The fiscal and current account deficits have been within comfortable levels, the rupee has been amongst the most stable emerging market currencies and foreign exchange reserves at USD 360 billion is sufficient to cover 12 months of imports.
"To put this in perspective, in the 1991 crisis, India's forex reserves had depleted to 12 days of imports and we were on the brink of default. This is why I reiterate that India is in a very advantageous position today," he said.
Parekh, chairman of financial services conglomerate HDFC, said the last financial crisis that India faced was in 1991.
"So for a quarter of a century, India has remained fairly stable. We must also remember that India bypassed the South East Asian crisis of 1997 and the global financial crisis of 2008. Yet, this by itself is not an achievement of any sort."
Parekh said 2014 was a landmark year as after a period of 30 years, India got a majority government in the lower house.
Noting that the reform agenda requires political consensus, he said, "One of the most significant achievements of the present government has been its ability to weed out large scale corruption at the Centre.
Parekh further said opening up of FDI in an array of
sectors -- railways, defence, media, e-commerce, insurance, asset reconstruction companies, pensions and stock exchanges -- have reaped benefits and India remains one of the most attractive investment destinations.
He also listed several other reform measures such as proposed phasing out of the Foreign Investment Promotion Board (FIPB), a big thrust on financial inclusion, differentiated bank licences and universal banking licences being given on tap.
With many sectors being put on the automatic route for approval of FDI, the FIPB would be phased out, Parekh said.
"This is a welcome step and a signal to the world that India is truly open for business. This is a measure towards ease of doing business," he said.
"However, if I were to look at the financial services space and retail finance in particular, in India, the level of under-penetration is so low that there is immense scope to grow.
"So as far as retail finance is concerned, there is immense scope to grow. It is important to caution that in retail finance, irrational competition can play havoc.
"When competition is intense, it is easy to gain market share by under-cutting, but it also forces other players to match up and there have been many instances where players have burnt their hands by lending at rates that are below their cost of funds."
He said the financial sector in India has by and large been well regulated.
"While a 'light touch' regulation may be preferred by finance players, the regulators are right in guarding against the build-up of a shadow banking system.
"In a bid to control indiscriminate growth of non-banking financial intermediaries, the Indian regulators have curbed these entities from raising public deposits."
Parekh said a worrisome trend seen globally with banks has been the galloping rate of fines being imposed.
Referring to large global banks having paid regulators USD 320 billion in fines since 2008 for regulatory failings, he said no one is disputing that regulators do need to come down hard on banks engaging in deliberate market manipulation and fraud.
"Complexity of regulations has increased manifold. Bank boards are compelled to spend a disproportionate amount of time on compliances at the cost of business strategy.
"I strongly believe that global regulators need to go slow on indiscriminate fining given that compliance costs of banks have increased to the point where some banks have had to scale back operations, leading to widespread job losses," he said.