Banks may have consolidation or more pvt sector ownership in future: CEA

Arvind Subramanian flays ratings agencies for adopting inconsistent standards

Infrastructure projects needs to look at other forms of financing, rather than from the banks, and the public sector banks should have better governance in future, said Arvind Subramanian, Chief Economic Adviser, Government of India. He was commenting on the concerns on the Non Performing Assets (NPA) level in public sector bank compared to lower NPAs in the private banks.

Speaking to the students of various institutions after delivering a talk on 'Economic Survey 2016-17: How India Surprises' at Indian Institute of Technology, Madras, he said that the anti-profiteering clause under the Goods and Services Tax (GST) regime would ensure that the trade and industry pass over the tax reduction benefits to the customers, and the tax hikes are not passed over to a higher level.

Commenting on the bank NPAs, he added, "In future, we could either consolidate the banks or we could at some stage even have more private sector ownership of the banks and less public sector ownership."

When analysing the high level of NPA in the public sector, one should keep in mind that most of the lending for the growth of infrastructure in the years after 2000, was from the public sector banks and not the private sector banks. The private sector banks, for some reason, restrained themselves into retail lending or such businesses. During the years from 2000, the government adopted the public private partnership model to develop infrastructure and the private sector funding was mainly from public sector banks

While there is criticism on public sector banks for the level of NPAs, they were the organisations that offered finance to a lot of infrastructure.

"Had that financing not happened, may be some of the infrastructure would not have come up. When we do the cost-benefit analysis today, of public sector vs private sector, we should keep that in mind that there were some good that has happened because of it," he added.

"All financial systems all over the world, during booming period, made mistakes. To some extent the problem cannot be avoided and we can only keep checks on this," he said.

"The ratings on the country by the rating agencies has been of poor standards, considering they have offered higher ratings to China, which has been seening a growth in credit compared to the growth of economy, while India has always been rated low even though it has been performing better in this parameter," he added. He said that the best way is to ignore these agencies.

On the implementation of GST, the government is keen on not putting any burden of higher tax on the customer and the provisions such as anti-profiteering, which hopefully not to be invoked unless it is necessary, is to reassure that the industry and traders pass on the benefit of decrease of tax to the customers and do not pass on an increase in tax to more than a level.

"I think, the anti-profiteering clause is meant to reassure the consumers at large that GST will not lead to significant increase in price and inflation," he averred.