According to CII, despite the impressive gains over the past eight years, India has basically remained at the first phase of (macro-economic) reforms.The second phase of micro-economic, sectoral and structural reforms have still remained as part of the unfinished agenda and is critical to give greater play to macro-economic reforms.

As a part of the financial sector reforms, CII has stressed on the need for reforms in the banking sector and has pointed out that the sector bears the burden of priority sector lending which was estimated at an alarming 40 per cent of outstanding bet bank credit in 1997-98.

Such credit, CII said fetch lower interest income, carry significantly higher unit administrative costs and have a proportionately higher share of NPAs.

The publicsector banks continue to carry very high NPAs and in 1997-98, the ratio of gross NPAs to total advances was 16 per cent, thereby resulting in dead-weight loss preventing a downward move in lending rate, said CII. Even though acknowledging that reforms in the banking sector were not easy, CII emphasised that they were vital for the competitive growth for real sectors of the economy. CII has emphasised on five elements of banking reforms: capital adequacy, income regulation, NPAs and prudential norms; privatisation; weak banks; attachment and foreclosure procedures against systematic defaulters and greater flexibility for the all India development financial institutions (DFIs).

As far as the capital adequacy ratio is concerned, CII has stated that it should be possible to raise the ratio from eight to 12 per cent in four years. There are good reasons to believe that even a 10 per cent capital adequacy by 2002 AD as suggested by the Narasimham committee is too low for developing countries.

It is imperative,CII has reasoned, to accept the internationally recognised accounting practices for Indian banks to attract global capital. Most of the measures, CII said, would be nullified if privatisation of banks were not pursued aggressively. The advantages which could accrue would be the positive ripple effects on the real economy as well as the stock markets and the improvement in the efficiency among others. Dwelling on the imminent need to reform the bankruptcy laws and procedures, CII said all attempts at reforming them have been stymied by a contentious phrase called "exit policy".

Pointing out the lacuna in the bankruptcy procedures, CII said that the very definition of financial distress is faulty since it has been defined as erosion of net worth. This is much worse than bankruptcy which basically means a depth default and when a company loses so much so as to erode its net worth, the profitability of a successful turn around becomes very low.The second phase of reforms, CII reiterated, needs winding upprocedures that radically expedite the sale of assets whether in the corporate form or as individual properties.