India requires a much larger number of banks to take banking to every corner, new CII president Sanjiv Bajaj said on Monday, highlighting the need for allowing large non-banking financial companies (NBFCs) to offer full banking services.
Large and strong NBFCs need to be given “more teeth”, so that “they don’t just provide last-mile banking but provide what banking can provide”, of course, after putting in place an adequate amount of risk-mitigation measures prescribed by the Reserve Bank of India (RBI), said Bajaj, who is also the chairman and MD of Bajaj Finserv.
While India has only about 500-600 banks, including the regional rural ones, the US has a network of some 26,000 banks even while having a fourth of India’s population, former chief economic advisor KV Subramanian had said earlier.
Addressing his maiden press conference after taking over as the CII chief, Bajaj said the prospect of a normal monsoon season and the central bank’s move to hike the benchmark lending rate will help curb retail inflation, which “should put us in a better place” by the second half of this fiscal.
Bajaj said an immediate step to moderate inflation could be to cut taxes on fuel products, which constitute a large share of the retail prices of petrol and diesel. “CII would encourage the Centre and state governments to collaborate in reducing these duties,” he added. Retail inflation hit a 95-month high of 7.73% in April on a broad-based rise across food, fuel and core segments.
Endorsing privatisation in the financial services sector as well as asset monetisation, Bajaj said: “Our understanding is that the government continues to be committed to do this (privatise two state-run banks and an insurer, as announced in the Budget for FY22). It could be an important signal once they go ahead with this, because it will put to action their intent that the government shouldn’t be in the business.”
The CII, Bajaj said, expects FY23 GDP growth to remain in the range of 7.4% to 8.2%, depending on the level of crude oil prices. An average crude oil price of $90 per barrel in FY23 will drive up growth to 8.2%, while that of $110 will drag it down to 7.4%, he added.
Despite the rising interest rate scenario, Bajaj said private capex will witness a broad-based revival in FY23. Some sectors like metals, chemicals and mining have already seen this revival, which will only widen this fiscal, he added. He expected the RBI, which started the cycle of raising the repo rate in May, to present “a clear direction as to how they are going to address interest rates” in the next monetary policy review in June.
Global headwinds and inflation will have to be countered with robust policy reforms, both internal and external, to unlock the growth potential of the economy. The tailwinds that are supportive of growth in the short-term include government capex, private sector investment (which is showing an uptick aided by strong demand in some sectors) and the production-linked incentive (PLI) schemes, Bajaj said. On top of these, a robust performance of the agriculture sector on the back of a good monsoon will augur well for the economy, he added.
Sharing the CII’s vision for the economy, Bajaj said that India has the potential to emerge as a $40-trillion economy by the time it turns 100 in 2047. The milestones of becoming the $5-trillion economy can be realised by FY27 and $9 trillion by FY31.
He expected the share of manufacturing in GDP to go up to 27% by 2047 from about 16-17% now, while the share of services will rise from 53% to 55%.