Need to tap foreign capital to accelerate growth to 8%: CEA K V Subramanian

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Published: July 16, 2019 10:17:08 PM

On the merger in the public sector banks, Subramanian said they are being done based on synergies, and policy is to exploit economies of scale.

Achieving USD 5-trillion economy by 2024-25 is possible although the goal is slightly stretched, he said. (Representational image)Achieving USD 5-trillion economy by 2024-25 is possible although the goal is slightly stretched, he said.
(Representational image)

Chief Economic Advisor K V Subramanian Tuesday said there is a need to tap foreign capital to accelerate growth from the current level of 7 per cent to 8 per cent.

“Apart from sovereign bond issue, we also need to be tapping into foreign capital to trigger the virtuous cycle. Once this virtuous cycle is triggered then other parts start moving,” he said at the book launch of HDFC Bank 2.0-From Dawn to Digital.

Achieving USD 5-trillion economy by 2024-25 is possible although the goal is slightly stretched, he said.

“When we get investment that enhances productivity, exports, jobs which leads to demand and thereby again creates investment triggering that is actually important. Of course, we are growing to close to 7 per cent. In order to grow at 8 per cent, we do need to trigger this and, therefore, foreign capital is something that has to be encouraged,” he said.

Indian economy reached to the level of USD 1 trillion in 55 years and added USD 1 million in the past 5 years to USD 2.75 trillion by March 2019, he said.

On the merger in the public sector banks, Subramanian said they are being done based on synergies, and policy is to exploit economies of scale.

“Rather than any top-down strategy or mandate which says we need to have four banks, this should be based on looking at banks that might combine well because of synergies,” he said.

As part of consolidation exercise, erstwhile Vijaya Bank and Dena Bank were merged with Bank of Baroda (BoB) effective April 1 to create the third-largest lender of the country.

The maiden three-way amalgamation is the first step in the consolidation of the public sector banking industry, recommended in 1991 by the Narasimham Committee report. Through this merger, the government has created an institution of global scale and size, thereby providing significant benefit to all stakeholders.

The consolidated entity started the operation with a business mix of over Rs 15 lakh crore on the balance sheet, with deposits and advances of Rs 8.75 lakh crore and Rs 6.25 lakh crore, respectively.

BoB, the second-largest public sector lender after State Bank of India, now has over 9,500 branches, 13,400 ATMs, and 85,000 employees to serve 12 crore customers.

Prior to the BoB merger, the government only had experience of State Bank of India which had merged five of its associate banks — State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad and also Bhartiya Mahila, effective April 2017.

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