Balance sheets of external sector, banks need greater focus of govt: Report

With national and few states elections around the corner, greater focus is being put to address distress in the farm sector but this strains the government's finances as well as balance sheets of banks, says a report.

According to Dun & Bradstreet, in order to sustain growth momentum, the government needs to improve the balance sheet of the country's external sector as well as banks.

"Loan waivers and increase in Minimum Support Price (MSP), in particular, are not productive solutions. They are at best transitory, but place a huge burden on the government finances and the public sector banks which are already under stress for bad loans," said Arun Singh, Lead Economist Dun & Bradstreet India.

The report outlined that if the four states, which have announced a farm debt waiver in 2017, consider to waive 'only' the crop loans given to small and marginal farmers, it would result in writing off more than 65 per cent of the outstanding crop loans given by all Scheduled Commercial Banks (SCBs) and this would be an addition to the already stressed public sector banks.

Singh further noted that besides banks, the balance sheet of the external sector and the government has now assumed importance given the rise in risks from internal and external sector.

For the Indian economy, while domestic risks emanate from rising inflationary pressures, weak rupee, and widening increasing current account deficit, external sector risks have intensified from geopolitical risks, a disorderly tightening of global financial conditions, and escalating international trade tensions.

Meanwhile, the rupee is expected to remain under pressure amid geopolitical risks, widening of trade deficit, escalating tensions in global trade and FII outflows.