Finance minister P Chidambaram said on Saturday the countrys economic growth had declined to 5.5% in the first quarter and is likely to remain at 5.5% in the second quarter too. When our growth declined to 5.5% in the first quarter of this financial year, and when growth is likely to be around 5.5% in the second quarter of this financial year, it goes without saying that we face a difficult situation, Chidambaram told reporters on the sidelines of bankers conference Bancon 2012. The Central Statistical Organisation is scheduled to release GDP figures for the second quarter on November 30.
Chidambaram said that to overcome the difficult economic situation, there is a need to find innovative ways to increase the output of goods and services, adding that finding new ways to help the poor depends on high economic growth, both for jobs and income.
The finance minister called upon banks to play an active role in reviving the economy. I believe banks represent the heart of the financial system and they will drive the revival of Indias economy, he added.
Speaking at the event, the finance minister said consolidation of the banking sector was inevitable. We should not fear consolidation. There is a need to create two to three world-size banks and for this there is a need for some consolidation in India. While there is space for local banks, some may have to let go their identities. While he did not have a roadmap for consolidation, the FM said the impetus for this would have to come from the bank and their boards.
The FM said the government would launch its ambitious project of using the banking system for cash transfers to citizens on January 1. On Monday, the Prime Minister is holding a meeting of the cash transfer committee, Chidambaram said. To start with, 51 districts across 16 states will be covered under this direct cash transfer through Aadhar-based systems. We wish to transfer all cash payments directly to beneficiaries through Aadhar-enabled accounts. We have only five weeks to begin rollout. We want to roll out in all the 61 districts by end of 2013, the FM said.
Chidambaram hoped the banking system would make this project a success and the government will now know exactly how funds are transferred till the last paisa. The cash transfers could begin with transfer of subsidy on LPG cylinders, he said.
He also reiterated the demand that the Reserve Bank of India should speed up the process of finalising new guidelines for issuing new banking licences. He hoped the RBI would resume the process started a year ago to finalise guidelines and start accepting applications for issuing licences as early as possible. These powers are already with the RBI and the new Act only formalised these powers, he said.
Responding to a query on the failure of spectrum auction, the FM was confident of reaching the target of R40,000 crore from spectrum allocation and refused to term the auction as a failure or a success as the process of auction is not yet complete. The auction was not a one-stop, one-stage affair. It will have to go through the first stage, the second auction and, if necessary, a third auction, Chidambaram said. There is an opportunity when we refarm the 900 Mhz spectrum, he said.
On rising bad loans in the banking system, the FM said when the economy slowed down, a rise in NPAs was expected and there would be some stress, so it was the duty of banks to hand-hold them. The banks should hand-hold certain sectors till the economy revives, he said, listing construction, textiles, telecom and infrastructure among such sectors. Regarding the passing of important bills in Parliament this session, the FM said he had a very good meeting with Sushma Swaraj and Arun Jaitley on Friday and was very encouraged by the meeting.
* Consolidation of banking sector inevitable: There is a need to create two to three world-size banks. While there is space for local banks, some may have to let go their identities.
* Cash transfer scheme: Launch on January 1, 2013. All cash payments to be transferred directly to beneficiaries through Aadhar-enabled accounts. Rollout in all 61 districts by end of 2013.
* New banking licences: Hope RBI would resume process started a year ago to finalise guidelines and start accepting applications for issuing licences as early as possible.