Arun Jaitley for hitting undo button to revive economy

Written by fe Bureau | New Delhi | Updated: Jun 11 2014, 08:20am hrs
Arun JaitleyFinance minister Arun Jaitley on Tuesday hinted that many of the regime?s policies that stymied economic growth could be reversed. (PTI)
Hitting out at the last UPA government for the labyrinth the economy has got into, finance minister Arun Jaitley on Tuesday hinted that many of the regimes policies that stymied economic growth could be reversed. The UPA left the economy in a bad shape. Things that have been done have to be undone, he said in the Rajya Sabha in what was seen as an oblique reference to the UPAs costly welfare schemes that strain government finances and investor-unfriendly policies like retroactive taxation.

He rued many opportunities missed by India to become a low-cost manufacturing hub for the world and said it cant afford to miss another chance, which could be the last.

For the last two year India has grown at less than 5%, which is disappointing, the minister said, adding rhetorically that even if the country did not have a government, the economy would still have grown at 5%.

Earlier in the day, bankers and officials from financial institutions, hit by the double whammy of tepid consumption spending in the economy partly caused by the prevalence of high interest rates transmitted from the central banks tight monetary policy on the one hand and paucity of capital on the other, impressed upon the minister the need to take bold steps to bolster their lending prowess and improve the governments own finances.

Jaitley said in the Rajya Sabha that the governments focus will be to strengthen social and physical infrastructure, unlocking the potential of the railways, reviving the manufacturing sector and creating more jobs. Jaitley said the slowdown in economic growth coupled with high inflationary pressure poses a challenge to the economic environment. He told banks and FIs that we together need to steer the economy in the right direction.

Bankers told Jaitley to consider the listing of Life Insurance Corporation to pare the governments stake in he insurer to 51% from 100% now, a move that could fetch substantial funds for bank capitalisation and for bridging the fiscal deficit. LICs asset value is estimated to be R15.6 lakh crore.

The bank chiefs stressed that the governments stake in public sector banks (including in State Bank of India and Punjab National Bank, where it now holds 58%) could be reduced to 51% to boost their capital base.

Hiving off the banks' non-core businesses and assets (including real estate) has also been mooted as an option to raise capital. The capital requirement of all banks (including private banks) is estimated to be over Rs 5 lakh crore over the next five years to meet the exacting Basel III requirements.

PSBs, the government had said earlier, would need capital to the tune of Rs 46,000 crore this fiscal including budgetary support. In the interim budget in February, the UPA government had allocated only Rs 11,200 crore to PSBs for this fiscal. Though there was a plan to provide another Rs 6,000-8,000 crore in the regular budget, a final decision is yet to be taken. The recent cut in the statutory liquidity ratio (SLR) by 50 basis points to 22.5% is estimated to infuse liquidity worth around Rs 40,000 crore into the banking system.

On the proposal to list LIC, sources from the insurer said that since it was set up as a corporation under the LIC Act, it necessitated legislative approval for converting it to a company. Regulatory approvals from the Insurance Regulatory and Development Authority and the Securities and Exchange Board of India are also required for such a listing. The proposal, incidentally, comes at a time when the government is considering raising foreign investment in insurance companies from 26% to 49%.

Banks and FIs also pitched for the setting up of a national asset management company to deal with the bad loans. The bankers-FM meeting was against the backdrop of the the gross non-performing assets of the domestic banking system touching 4.4% of advances at the end of December 2013.

Later in the day, Jaitley met prominent economists like Surjit Bhalla of Oxus Investments, Ashima Goyal of Indira Gandhi Institute of Developmental Research, Nagesh Kumar of United Nations Economic and Social Commission for Asia-Pacific and Ajit Ranade of the Aditya Birla Group, among others. The economists stressed fiscal consolidation and simplification of tax regimes and some of them called for an economic vision for the next five years.