The major world powers fighting each other to grab more power, bourses bleeding and the fight against terror are leading to an ever-changing situation around the world. By the time you think you understand one financial condition, the next change hits you where it hurts the most. So, we listen to experts and try to decipher the present economic status and what to expect going forward.
“There’s significant volatility in growth rates and one quarter of 5% growth in GDP doesn’t change the trajectory, Dr Bibek Debroy, Chairman, Economic Advisory Council, Government of India, emphasised while giving a macro-economic overview at the inaugural plenary of the 12th Banking Colloquium organised by the CII in Kolkata on September 20. Dr Debroy elaborated that the Indian National Income Act changed in January 2015 and the base of the new data series was 2011-’12 and there had been volatile growth — ranging from less than 5% in a particular quarter to ‘shooting up to 7% in the next’.
Dr Debroy said in his deliberations that the ‘gloomiest’ of growth projections in 2019-’20 would be 6.2% and, although it may not be enough for all, it was doing good vis-à-vis the global bands of growth and there was no reason for gloom.
Dr Debroy, speaking on the national target of achieving a 5-trillion-dollar economy, said it was usually assumed that it would depend on the exchange and inflation rates. The real growth rate would be 8-8.5% and, to reach that, the components, or ‘prisms’, would be public expenditure, consumption, investments and net exports, he added.
Keeping in mind the external global environment, Dr Debroy said exports as a provider of ‘growth impulse’ did not hold much in store. He said land, labour and the capital market required ‘significant improvements’ and the states also needed to up their ante in terms of the GSDP rates, which, for several states — including some in the East — hovered at less than 6.5%. With more than 90% of the national income happening at the state level, the states’ GSDPs needed to grow to achieve an all-India growth of 8-8.5%. The focus needed to be more on agriculture, he added.
Dr Debroy expressed concern that the Centre’s finances were “extremely stretched” with GST compensations and expenditures of the divisible pool as recommended by the 14th Finance Commission. He said the present package of Centre-sponsored schemes would end on March 31, 2020, and the new, changed schemes recommended by the 15th Finance Commission would come into effect on April 1, 2020.
Speaking at length on GST, Dr Debroy said GST had led to loss in revenues and the average GST rate being 14% after revisions and reductions was not at par with the average taxation rates of the pre-GST era. Thus, GST had not been ‘revenue-neutral, but revenue-negative’. He also called for reforms of direct taxes and urged the industry to let go of exemptions and usher in a simplified tax structure. He added that, as an entity, the nation was still debating whether the fiscal consolidation had gone too far in the ‘cyclical downturn’ and left the stakeholders with the question of whether the nation should let go of fiscal consolidation and admit living with higher inflation rates.
Mergers important for robust banking system: MD, SBI
Dinesh Kumar Khara, Managing Director, SBI, speaking of the bank mergers, said that, although this phenomenon was the “most sensitive topic”, the mega-merger announced by the Centre’s finance minister was aimed at “creating a robust banking system with global reach”, which would take the 5-trillion-dollar-economy dream a step forward. He said that, although the mergers had created initial pain points, the benefits, in the long run, would far outweigh the former and an efficient use of capital and manpower would help the economy evolve into a globally significant one.
Citing the example of the SBI merger, Khara said the process had helped rationalize the number of branches, optimize staff strength, pool skill sets and boost the financial health of the merged institutions. The MD added that Rs4,350 crore per annum was saved on recurring expenses and Rs400 crore on cost of resources for the merged entities. He also said, “Mergers are the need of the hour”, for efficient operations, lowering of cyber security risks, enhanced efficiencies for financial closures, lending ecosystems and enabling better ratings vis-à-vis global banks.
At the Visionaries’ Roundtable, Chandra Shekhar Ghosh, Chairman, CII (Eastern Region) and Founder, Managing Director and CEO, Bandhan Bank, said banks needed to maintain good balancesheets and processes and there was a need for new players to come into the market, especially in the services sector.
Sonjoy Chatterjee, Chairman and Co. CEO, Goldman Sachs, said that, in the global markets, there was a high demand for India and there were growth opportunities. Sunil Kanoria, Vice-Chairman, Srei Infrastructure Finance Ltd, also concurred with Chatterjee that there were opportunities to grow across sectors.
Other than the technical sessions of emerging trends in corporate finance, new resolution mechanism and traditional vs new vistas of finance, the colloquium also saw the release of a report on Turnaround in the Indian Banking Sector – A Fact Check.