India should recreate specialised lending institutions for industry, agriculture

Updated: October 21, 2018 4:41 PM

India is a $2.8 trillion economy with a population of 125 crore and the best demographic profile among large economies.

economy, lending, industry, agriculture, indian economyA growth story cannot be built on the foundation of unpredictability. (Reuters)

Dr Aruna Sharma

The last one and a half decades saw many policies and procedures coming as knee-jerk reactions to perceived corruption, notional revenue losses and media trials. India is a $2.8 trillion economy with a population of 125 crore and the best demographic profile among large economies. More than 50% of its population is below 25 years of age and 65% below 35 years. Policies should be framed with a holistic approach to the problems facing the country, keeping in mind its long-term policy requirements. Knee-jerk policy making may result in India’s demographic dividend becoming its biggest liability.

A growth story cannot be built on the foundation of unpredictability. A problem-solving mechanism cannot be ad hoc. As the human development indices and the GDP growth rate are still way below the potential, the focus of policy making must be promotion scientific temperament and optimisation of production in agriculture and industry.

Look at the current scenario in the banking system. The decision making paralysis due to fear is the result of a set of knee-jerk reactions. Huge NPAs and lending to agriculture have become more of book entries than serious lending. Israel and China, with much less arable land and rainfall, have done much better than India in agriculture production. So our policy making should take these countries as benchmarks and should have a problem solving approach to small land holdings, agriculture inputs and cropping patterns.

Another area that needs attention is affordable credit is industrialization. Banks were specially created for lending to industrial enterprises, promote institutions engaged in industrial development and to provide technical and administrative assistance for industrial expansion. However, these specialized banks were forced to do other banking activities and lost their niche and expertise.

The PSU banks are asking the government to set up an oversight committee to examine allegations made against managements before any formal action is taken against bankers for NPAs. The demand is that the oversight committee should differentiate between business decisions gone bad and wrongdoings. Banking is under turmoil, the role of banks is to ensure capital inflows to trigger industrialization and enhance agriculture production. Institutions are condemned if there is one bonafide error of judgement. The contribution of the institution suddenly becomes zero and all good work done in the past is forgotten.

Similarly, Agri business took a back seat and push for value addition close to the farm to trigger quality employment got lost. The need of the hour is specialised lending agencies for industry and agriculture. India is second largest in terms of arable land, next only to the US, but is faced with low productivity. India is the second largest producer of rice and wheat after China, but the northern neighbour is producing about 40 per cent more grains than India. India is also the second largest producer of fruits and vegetables in the world after China, but China’s fruit production is three times India’s. Thus, agriculture lending has not be linked to enhancing productivity. A second Green Revolution is possible through measured policy initiatives and lending practices.

It is encouraging to note that the Chief Vigilance Commissioner has come up with directions to focus on promoters as well instead of finding easy targets in bankers. Bankers need to regain confidence to take lending decisions. There cannot be a growth story without innovative credit practices for agriculture and industry. The need of the hour is to go back to the drawing board to have a holistic system based problem resolution, instead of knee jerk reactions addressed at the symptoms and not the cause.

(The author is former secretary, ministry of steel, government of India. The views are personal.)

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