'Indian economy unmoved by reforms'
One obvious solution is for the government to inject fresh capital into state-run banks. The $3 billion that the government has set aside for this purpose in this year's federal budget is inadequate. Just one debtor - Kingfisher Airlines - owes lenders more than $1 billion. If the grounded carrier doesn't fly again, very little of this amount may be recovered.
As the controlling shareholder, the government should do much more to bolster the balance sheets of state banks. But it is also cash-strapped. A recent auction of telecom spectrum fetched the exchequer less than a fourth of the $7 billion revenue target. The annual budget deficit is at risk of wildly overshooting finance minister P Chidambaram's revised goal of 5.3 percent of GDP.
Chidambaram is trying a different strategy to end the credit downturn. He has asked the central bank to start giving out new banking licences quickly. Tactically, it is a smart ploy. New private lenders will bring in fresh equity and give the jaded banking system an additional loss-absorbing cushion.
But the Reserve Bank of India, which hasn't issued any new banking licences in 10 years, is holding up the finance ministry's plan, and for good reasons. Before it allows new deposit-taking institutions to be set up, including by non-financial corporate groups, the RBI, which is also the
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