Rahul Bajaj’s 2 reasons for GDP growth slowdown: Insufficient investments, ‘terrible state’ of banks

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Published: June 25, 2018 6:16:39 PM

Indian banks are unlikely to see a quick resolution to their 'terrible state' of being saddled by a huge overhang of NPAs despite the new bankruptcy process in the country, according to Bajaj Auto Chairman Rahul Bajaj.

Rahul Bajaj, Indian School of Business, China, India, Industrialization,Addressing shareholders of the company in its Annual Report for 2017-18, Rahul Bajaj cited the insufficient investments and current state of the banks as two “particularly important” reasons for the slowdown in India’s GDP growth. (Reuters)

Indian banks are unlikely to see a quick resolution to their ‘terrible state’ of being saddled by a huge overhang of NPAs despite the new bankruptcy process in the country, according to Bajaj Auto Chairman Rahul Bajaj. The veteran industrialist also said the country is facing insufficient investments and the current share of gross fixed capital formation to GDP is not enough to support steady-state growth of 7.5 per cent to 8 per cent.

Addressing shareholders of the company in its Annual Report for 2017-18, Bajaj cited the insufficient investments and current state of the banks as two “particularly important” reasons for the slowdown in India’s GDP growth.

The Indian economy on yearly basis grew at a four-year low of 6.7 per cent in 2017-18, down from 7.1 per cent in the previous fiscal. The previous low was recorded in 2013-14 at 6.4 per cent.

Describing the present situation faced by many banks in India as a “terrible state”, he said, “Saddled by a huge overhang of bad loans or non-performing assets (NPAs) that have eroded their balance sheets and destroyed profits, most banks have neither the requisite financial strength nor the confidence to fund industrial growth.”

This is not only affecting the bigger players but, much more so, the medium and smaller scale corporate entities across India who are now hard-pressed to secure necessary working capital let aside term loans for investments, he added.

“Despite the benefits that ought to accrue from the new bankruptcy process in India, I do not see a quick resolution to this problem,” Bajaj said.

Commenting on the impact of insufficient investment on GDP growth, he said, “Our share of gross fixed capital formation to GDP has been declining over the last six years and now stands at 31 per cent. This is insufficient to bring about a steady-state growth of 7.5 per cent to 8 percent.”

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