Terming the stress in the financial sector as unprecedented, he said nobody had faced this sort of situation in 70 years where the entire financial system was under threat. “Nobody is trusting anybody else within the private sector nobody is ready to lend, everyone is sitting on cash you may have to take steps which are extraordinary,” he said at an event.
Elaborating further, Kumar said some of the steps have already been announced in the Budget to address stress in the financial sector and give a push to economic growth, which hit a 5-year low of 6.8 per cent in 2018-19.
Explaining the reason for the stress in the financial sector, Kumar said the slowdown started with indiscriminate lending during 2009-14, leading to rise in non-performing assets (NPAs) post 2014.
On the issue of delay of payments by the government and its departments to the private sector, in lieu of goods and services availed from them, the NITI V-C said, “It could be one of the reasons for the slowdown but the authorities are making all efforts to expedite the process.”
“I have no hesitation in saying that the government is not involved in holding back payments, which are due to the private sector. At the moment, there is huge effort to get this sorted out,” he said.
Chief Economic Advisor Krishnamurthy Subramanian, who was speaking at the same event where Kumar was present, said in a liberalised economy like India, companies in troubled sectors should not be asking for taxpayer-funded bailout in the form of a fiscal stimulus.
Power Secretary and former Finance Secretary Subhash Garg said the April-June quarter gross domestic product (GDP) growth could be 5.5 to 5.6 per cent, even lower than the five-year low of 5.8 per cent in January-March quarter.
“Here is where we need to be careful. Since 1991, we are a market economy, and in a market economy, there are sectors that go on sunrise and then go through a sunset phase. I think we expect the government to use taxpayers’ money to intervene every time there is a sunset phase,” Subramanian said.
“I think you introduce possible moral hazards from too big to fail and the possibility of a situation where profits are private and losses are socialised that is basically an anathema to way the market economy functions,” he said.
Reuters reported that Indian stocks slid more than 1.5 per cent as comments from a policymaker as senior as the CEA failed to assure investors that the government was serious about taking steps to revive economic growth. The broader NSE index ended 1.62 per cent lower at 10,741.35 after hitting a fresh six-month low, while the benchmark BSE index closed down 1.59 per cent at 36,472.93.